This week, we speak with Jerome Schneider, head of short-term portfolio management and funding for PIMCO. Morningstar named him Fixed-Income Fund Manager of the Year (U.S.) for 2015.
He grew up in Oklahoma, and describes the oil crash of the 1980s. That affected him, as we watched the roughnecks and overall economy of Oklahoma suffer. The crash resulted in local destruction of wealth, and imparted upon him the dangers of leverage at a very early age.
We get into some fixed income wonkery — Liquidity, supply, safety, demand, central bank purchases, and the dearth of high quality assets all are part of our conversation. Schneider says it is too early to declare the multi-decade bond bear market over, but the need for the United States to borrow a greater supply of bonds is likely to help drive rates higher. He describes the modern Federal Reserve as maintaining its optionality; He explains how the Repo operations of the Fed currently operates, and why the transparent communication of the Fed is much improved from the bad old days when they would simply execute market transactions while saying nothing.
PIMCO is a top down macro shop, and the work he does comes from the fundamentals of interest rates, including the improving global economic forces, including EU zone and Japan. Investors adapting to higher rates is going to be one of the key drivers of the fixed income market in the coming years.
Funding is the key element to understanding liquidity management; Funding is the key element to understanding short term markets and interest rates.
Some of his favorite books are referenced below; conversation transcript is available here.
You can stream/download the full conversation, including the podcast extras on Bloomberg, iTunes, Overcast, and Soundcloud. Our earlier podcasts can all be found on iTunes, Soundcloud, Overcast and Bloomberg.
Jerome Schneider’s Favorite books
Bombardiers: A Novel of Business by Po Bronson
Liar’s Poker by Michael Lewis
Funny Money by Mark Singer
The Fountainhead by Ayn Rand
