8/22/2018 Pimco veteran says recession possible in as early as three years - The Economic Times

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Pimco veteran says recession possible in as early as three

years
BY BLOOMBERG | UPDATED: AUG 22, 2018, 05.59 PM IST Post a Comment

By Andreea Papuc and Ruth Carson Big Change:

The end of Five-Year Plans: All you need to know

Pacific Investment Management Co. sees a 70 per cent chance the world economy enters
a recession over the next five years as ultra-loose monetary policy from the U.S. to Europe
comes to a halt.

Marc Seidner, chief investment officer of non-traditional strategies at Pimco, warned investors should expect increased volatility as
monetary easing turns into monetary tightening. With traditional assets expensive, they can find some shelter in private markets,
Seidner, who has more than 30-year investment experience, said at a conference in Sydney.

“If you are thinking about global investing and global portfolios, you have to enter in a possibility of a recession in the next three to five
years,” Seidner said at the event organized by Portfolio Construction Forum. “Quantitative easing was a tide that lifted all boats. If we
were trying to look for historic analogues to the current environment in terms of monetary policy and possible unwind in the period to
come, there are none.”

The comments come as the world’s biggest economy heads for its best growth since 2005, buoyed by robust domestic demand and the
impact of tax cuts. The Federal Reserve remains on track for further interest-rate hikes this year, despite a meltdown in emerging
markets, rising geopolitical risks and mounting political headaches for the Trump administration.

The U.S. yield curve, as measured by the gap between 2-year and 10-year yields has flattened to about 23 basis points, a level unseen
since 2007.
Investors don’t have much flexibility in their investment decisions in the current environment of low interest rates, unattractive credit
spreads, high equity valuations and flat yield curves, Seidner said.

One bright spot is private credit in areas such as direct lending, stressed and distressed corporate loans, as well as real-estate focused
offerings including non-qualified U.S. mortgages and commercial development loans in the U.S. and Europe, according to Seidner.

“The opportunity set in private markets continues to expand and that we believe it to be a very significant, profitable and fruitful area for
investors,” he said. “Instead of earning 5 or 6 per cent, one can earn 10, 11, 12 per cent.”

New York-based Seidner, who helps run Pimco’s Dynamic Bond Fund and sits on Pimco’s investment committee, left the company
briefly in 2014 before rejoining the bond titan later that same year. He also worked with fixed-income veteran Mohamed El-Erian at
Harvard University’s endowment.

https://economictimes.indiatimes.com/markets/stocks/news/pimco-veteran-says-recession-possible-in-as-early-as-three-years/printarticle/655007… 1/2
8/22/2018 Pimco veteran says recession possible in as early as three years - The Economic Times

The Newport Beach, California-based asset manager oversees $1.7 trillion in assets, according to its website.

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