CIO Of World's Largest Bond Fund: "We Are Not Alarmist But It's Time To Sell"

It's been a while since the world's richest and/or most famous fund managers spooked retail investors with warnings to get out of the market... now. That changed overnight when Dan Ivascyn, the man who replaced Bill Gross as CIO of the world's largest bond fund at PIMCO, said that it's time to take profits... now.

Speaking at a Thursday panel during the UBS Global Wealth Management Summit in Davos, the man responsible for allocating hundreds of billions in client funds said that geopolitical tensions and rising interest rates have created a “much more fragile situation” than in early 2016, when the Brexit vote and the U.S. elections weighed on markets. He noted that with fixed-income markets still expensive by historical standards, there’s less room to absorb negative surprises.

"Market participants should become a bit more concerned. Wherever you were in the risk spectrum a year or two ago, we think you should be a touch lower" said an unexpectedly alarmist Ivascyn who added that "We are not overly alarmist but we do think it’s time to take a bit of risk off the table."

Ivascyn is not the only one worried about the escalating trade war between the U.S. and China: on Wednesday, and again this morning, first the Fed and then the ECB revealed in their published meeting minutes that both central banks see trade war as the biggest downside risk.

Additionally, Russian sanctions and the conflict in Syria have rattled global markets this year, while rising interest rates and a surging Libor have aggressively tightened financial conditions and are starting to put pressure on corporations that have borrowed heavily in the past years. As Bloomberg notes, "bond managers have warned that over-leveraged corporations could create the next wave of financial pain." So far stocks have refused to listen.

Then there is the risk of the unwind of some $20 trillion in central bank liquidity injections:  “You are clearly seeing signs of increased volatility associated with some of the central bank uncertainty, political uncertainty we have seen in the U.S., emerging markets and Europe,” Ivascyn said.

Earlier in the day, the CEO of Credit Suisse, Tidjane Thiam, agreed that the ongoing central bank tightening will lead to "trauma."

"The tensions are showing and it’s very hard to imagine where you can get out of a scenario of prolonged extraordinary measures without some kind of - I always use the word ‘trauma,’” Thiam said at an event in London on Thursday according to Bloomberg. “It was a reasonable answer to an extreme situation, but the challenge was the lack of an explicit exit strategy and that’s showing."

Other bankers have also warned on the effect of a return to a more normal interest rate environment, with JPMorgan executive Daniel Pinto saying last month that equity markets could fall as much as 40% in the next two to three years amid rising rates and inflation.

For now, with the S&P still just a few percentage points from its all time highs, algos which only care about frontrunning other algos, and not to mention buyback VWAP programs, don't seem to care...

Comments

fx Arnold Thu, 04/12/2018 - 11:42 Permalink

That guy ain't no Bill Gross. When Bill speaks, I do listen. But this is pure fluff, softetend speak that keeps all options open to reverse the stance at a whim.

That said, I agree that it is time to trim risk, but I think one should do so rather aggressively here. Yes, it can mean leaving another 20-30 % upside on the table in stocks, but I regard the downside risk for the coming 5-10 years way higher than that tiny upside.

In reply to by Arnold

Snaffew fx Thu, 04/12/2018 - 11:53 Permalink

leaving 20-30 percent on the table is way too much to get out early.  I'm not saying there is that much upside, but if there is---it would be a huge mistake to get out now.  That would mean you sold the S&P at 2670 and would watch it climb maniacally to almost 3500 and then sell off?

In reply to by fx

Richard640 DownWithYogaPants Thu, 04/12/2018 - 12:27 Permalink

HMMMMM...I WONDER WHAT DENOMINATION THIS TOUT IS? EPISCOPALIAN? METHODIST? CATHOLIC? CLEARLY HE IS NOT A DIRTY JOO-!! MAYBE HE'S A DIRTY BAPTIST

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THE ABOVE WAS FOR THE JOO-HATING VERMIN ON THIS SITE-STOP WITH THE JOO-HATING ALREADY--IT'S GETTING BORING--IF U DON'T LIKE WHAT SOMEBODY WRITES OR DOES, JUST CALL HIM A NO-GOOD, COCK-SUCKING,  LOW DOWN, WHORE SON ASS-FUCKER...AND LEAVE OFF THE RELIGION...U'LL FEEL BETTER...AND SO WILL THE REST OF US...

In reply to by DownWithYogaPants

natxlaw DownWithYogaPants Thu, 04/12/2018 - 12:43 Permalink

Be careful, he knows everyone who knows anything expects him to Telegraph opposites, he may be telling the truth. He may follow this up with purchases, from his own dark pools, while selling twice as much as he’s not actually buying from those same pools. I know we’re trained to think the Algos are going to take him at his word, but you know they have back doors that can adjust them. We have never seen a seismic shift in algo behavior, so it is a con that will work once before the SEC regs it out. We’re entering uncharted territory and you can bet your life (((they)))have a plan you’ve never seen before. You should too.

In reply to by DownWithYogaPants

Endgame Napoleon Thu, 04/12/2018 - 11:12 Permalink

This is a global trade war in which the USA armed its opponents, China and Mexico, with middle-class-destroying arms shipments of over 2 million breadwinner jobs, a budget-busting loss of tax revenue and SS contributions before the Boomer retirement, advanced technology and design secrets pioneered in the USA that are unprotected in global monetarist dictatorships and savvy propaganda from globalist cheerleaders in the media and US government who root for the other side in the trade war. 

 

GoingBig Thu, 04/12/2018 - 11:44 Permalink

I don't see how you can't respect this opinion. He is spot on. There is no reason to think bonds will do anything but go down from here.

FlKeysFisherman Thu, 04/12/2018 - 11:59 Permalink

Outrageous that these statements are made in public. If he wants to inform his clients he can do so in an email or letter. Clearly this asshole is attempting to affect the market.