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Bond giant Pimco has warned that investors are underestimating Donald Trump’s resolve to recover the sudden tariffs that overturned the market last month, as investment directors said the risk of a recession is the highest ever.
“I believe in Trump. He believes in tariffs,” Pimco’s chief investment officer Dan Ivacyn said in an interview with the Financial Times along with CEO Emmanuel Roman.
Trump imposed “mutual” taxation on many of his major trading partners during his “liberation day” event on April 2nd. A week later, the president’s decision would suspend collections of most trading partner partners in a 90-day calm market, with the S&P 500 stock index turning the plunge triggered by the announcement.
But Ivacyn, a bystander at the Milken Institute Global Conference in Beverly Hills, said investors are wrong to think that Trump’s collection will be withdrawn completely or less mandatory than previously announced.
“People still believe there is a ramp-off lamp (against tariffs), and we’re going to go back to what feels like the day before liber,” he added. “I’m not sure.”
Still, Ivascyn said “you’d think the ultimate tariff rate is low,” and 2TN’s asset manager looks closely at how Trump coordinated his policies based on markets like the Federal Reserve and policymakers’ responses.
Ivascyn also said that taxation could lead to “more “stag milling” scenarios” (higher price levels at a point when the economy slows down).
“We may be in a recession,” he added. “The probability is the best in a few years.”
Ivascyn’s comments came as the Fed on Wednesday warned that Trump’s policies could increase uncertainty about the world’s biggest economy and increase inflation and unemployment.
Pimco is cautious about assigning it to economically sensitive areas of the market, and Ivascyn points out that corporate debt has “a lot of bubbles and complacent.”
“We’re continuing to be defended there,” Evsin said.
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He added that Pimco is still supporting “high-quality sectors like mortgages” given that it has “very strong household balance sheets.” At the same time, he said Pimco has slightly increased US government debt exposure over the past two months, focusing on shorter date maturities.
Still, Ivascyn said that the volatility and uncertainty in the US market and the worsening financial position of the country have increased the appeal of investment in sovereign bonds in other markets.
“The US will not lose its reserve currency status anytime soon,” Ivasin said. “But… it’s hard to see meaningful progress in a deficit.
“That, coupled with the fact that this tariff policy is likely to lead to rising price levels here, I think it would be wise and just look for other high quality markets that are diversifying.”
