The transcript from this week’s MIB: Libby Cantrill of PIMCO is below.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Stitcher. Our earlier podcasts can all be found on iTunes, Stitcher, Overcast, and Bloomberg.
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VOICE-OVER: Masters in Business is sponsored by Harvard Business School Executive Education, offering four comprehensive leadership programs that transfer rising executives into competent business leaders. To learn more visit hbs.me/transform. That’s hbs.me/transform.
This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: This week on the podcast I have an extra special guest. Her name is Libby Cantrill, and she is the Head of Public Policy Affairs and Government Affairs at PIMCO where she not only works lobbying to make sure PIMCO’s voice is represented in D.C., but is integrated very closely with the Investment Committee explaining what is coming down the road from Congress and D.C. and what various events are going to do that could very well impact bonds or stock holdings. And — and that’s a really unique position in the world of finance.
PIMCO literally created this role just for her, and she’s been thriving doing this. If you are at all interested in government affairs, public policy and how that intersects with finance and Wall Street, then you’re going to find this to be an absolutely fascinating conversation.
So with no further ado, my chat with PIMCO’s Libby Cantrill.
I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My special guest today is Libby Cantrill. She is head of public policy at PIMCO, the investing giant managing $1 trillion plus in fixed income and equities. She coordinates the firm’s response to policy issues and analyzes political events for the firm’s Investment Committee.
She has an MBA out of Harvard, undergraduate. She was at Brown. She is also a CFA charter holder.
Libby Cantrill, welcome to Bloomberg.
CANTRILL: Thanks so much for having me.
RITHOLTZ: So let’s talk a little about the early days of your career, you started as an investment banking analyst in 2000, pretty much as the bubble was blowing up.
CANTRILL: Right.
RITHOLTZ: What was it like to begin your career in that environment?
CANTRILL: Yeah, it was — it was certainly an interesting time and not only it was in investment banking, but it was actually in the technology corporate finance department of investment banking.
RITHOLTZ: Perfect.
CANTRILL: So I was right. I was — I had a front row seat in some ways to — to the — the run-up to the bubble and then, of course, the bubble bursting. It was, you know, it was interesting because I think, in some ways, looking back on it, it just — I think it reinforced this idea of — of the markets are cyclical that — you know, that — that — that asset, you know, prices go up. And if they go up to a point where — that they seem completely disconnected to their fundamentals, then they probably — there’s probably a problem.
So, you know, going back, I — I — I did have sort of a traditional business background in college. I — I majored in — in math and — and economics. At Brown, there was no pre-business course…
RITHOLTZ: But math and economics is pretty much what you need…
CANTRILL: Yeah.
RITHOLTZ: …if you’re going to go into markets…
CANTRILL: Yeah, if you’re going to do corporate finance, but it’s different, right? I mean, I’ve never taken an accounting course, but — but something that I did think that — that has stayed with me is that when I entered the technology group at Morgan Stanley, yeah, I was questioning how we were valuing these — these companies when not only did they not have profits, but they hardly had any sales.
And, of course, a lot of people who are, you know, much more senior to me and much more experienced and I think much wiser, said, “Oh, you know, Libby, you’ll — you’ll learn, you know, you just — you know, you’re…
RITHOLTZ: So that clicks.
CANTRILL: …you’re going to get your feet wet and, yeah, in terms of…
RITHOLTZ: Right.
CANTRILL: …corporate finance. So, you know, that — that’s held me to this day because, you know, common sense actually does typically prevail as with all these things did unravel, I think, in some ways to my very kind of, you know, nascent neophyte, you know, point of view. It wasn’t necessarily that surprising.
RITHOLTZ: So, revenues and profits, that’s old school. What about eyeballs and clicks?
CANTRILL: Exactly. Cash flow statements…
RITHOLTZ: Right.
CANTRILL: …what are you even talking about, yeah?
RITHOLTZ: Right, I — I literally had a conversation yesterday with the venture capitalist who said, “Let’s be honest. If we’re looking at discounted cash flows on these startups, they’re all made-up numbers. How can you even begin to put a — put a figure, a valuation on that?
CANTRILL: Yeah, exactly. And I think, you know, even in the run-up on the housing side as well, I was in business school, I remember being in a class in my — you know, my — my business school colleagues were just pounding the table that, you know, everybody should be able to own a house and it doesn’t matter…
RITHOLTZ: Or three.
CANTRILL: …what their income was. It doesn’t matter, exactly, or three.
Everybody should be able to get a loan. And, you know, again this didn’t pass the smell test and I think my experience at Morgan Stanley just sort of reinforced the importance of common sense and the smell test.
CANTRILL: Exactly, right, right.
RITHOLTZ: And he says, “Wait, you have a house?” She goes, “No, I have six,” and that’s why the light bulb goes off. This is all going to collapse, right.
CANTRILL: It tells how sad, exactly, exactly.
RITHOLTZ: Just — just hilarious.
So, so in 2003, you go to Washington. You work for a congressman, right?
CANTRILL: A congresswoman, yes.
RITHOLTZ: Congresswoman, congressperson.
CANTRILL: Yes.
RITHOLTZ: And you’re — you’re doing legislative work, you’re doing policy analysis. How do you make the transition from that back to finance? Was that a natural progression or was a little bit, hmm, let’s see if we can — if we can mix these two interests.
CANTRILL: Yeah. So, you know, when I was — sorry, a third year investment banker at Morgan Stanley, I was a financial sponsor so I was in the Private Equity Group. And when all of my friends are graduating from the Analyst program, they were all going into Private Equity programs, you know, TPG and Apollo. And I just felt, you know, as much as I liked my experience in investment banking and, in some ways, so many of the things that I apply I learned from that experience. I just was looking for something more.
And before I even went to college, I had worked as a volunteer for a woman at the time who was in the Colorado state legislature where I’m from. And I had sort of always had this itch about going to Washington. And so it felt like it was — it was scary in a lot of ways because again all my friends in investment banking at Morgan Stanley were going to these, you know, very — these premier private equity firms, and I was thinking of taking this really significant pay cut to do something that was pretty risky.
But this woman who I worked for in Colorado have later gotten elected to Congress, and so that I worked for her as a legislative aide. And I really do view that as one of the inflection points in my career as something that felt really uncomfortable and really scary, but it was in retrospect the best decision and…
RITHOLTZ: Would you recommend going…
CANTRILL: …as how to inform, you know, so much of what I’m doing today.
RITHOLTZ: Would — would you recommend people go outside of their comfort zone and do stuff that’s scary as a way to develop their career? Because it sounds like it worked out very well for you.
CANTRILL: Yeah, you know, it’s so trite, right, kind of go — you know, go — do something that’s — that’s pushes you, that’s uncomfortable. But a business school, when my professors gave her kind of — at Harvard they had these like speeches of every semester. And she said, you know, “Go towards the discomfort in your career.” So when somebody asks you to do something that feels really uncomfortable and makes you sort of nauseous, you know, do that because that means that you’re going to — to lean. And even if you fail, you’re your learning through failure.
And so, you know, I think this going to Washington was even maybe a bigger example of that but, you know, you’re in your 20’s. And I felt like, you know, looking back again it was such a wise decision but it was — it did feel really scary.
RITHOLTZ: I don’t — I don’t think that’s trite. I think people are afraid of — of that uncomfort zone that this –that I’m not familiar with this, I don’t know this. And I wish when I was younger I was more willing to try stuff that really frighten me. It’s so easy to say, “I really don’t have any expertise on that. I’m going to stick to my netting.”
CANTRILL: Right. No, exactly. And I think, you know, again I see a lot of my friends who went right from investment banking to private equity to business school, and then they kind of had a reckoning in their career, right, because they hadn’t necessarily scratched those itches that were maybe a little more unconventional, a little bit scarier. And you have less to lose in your 20’s, right, and have a family. I didn’t…
RITHOLTZ: Have a time.
CANTRILL: I didn’t have…
RITHOLTZ: No mortgage, no kids.
CANTRILL: Yeah, I had — right, and I had made enough money at Morgan Stanley to, you know, have some savings because it was a really dramatic pay cut. But again money had never really been sort of the big focus in my life. It was doing to me, again sounds sort of cheesy but doing something that fulfilled me and taking that step really kind of satisfied a lot — a lot of what I was looking for.
RITHOLTZ: Take us through the typical day in the life of the Head of Public Policy at bond giant PIMCO.
CANTRILL: Yeah, I mean, I think that title is big enough that it sort of encapsulates, you know, and a lot of what I do and allows it to be really dynamic, which it is. So, the way I think about the position and it’s — I — the position didn’t exist before — before I took it over and so, in some ways, that’s given me a lot of flexibility — in the firm a lot of flexibility in order to sort of design it in the way that they — you know, that they see fit. And that is the most sort of beneficial from a client and investment perspective.
So, you know, I — I view myself as wearing a couple of different hats in that — in that role. One is this sort of traditional government affairs role, which is advocating on behalf of our clients and our business about policies in Washington or, you know, playing defense in some ways depending on the administration and what’s going on in — in D.C. So one is we have a traditional government affairs role.
The other hat though that I think is — is more unique in this position is that I’m pretty integrated into the investment process. So, helping our investment committee to think about what’s going on in Washington and how that may inform our positioning and our macro outlook.
And then sort of the last sort of function that I serve is you’re talking to clients about how we’re thinking about Washington, how we’re looking at things. And as you might imagine on any given day, you know, there’s more demands in one of those sort of parts of the function than others. So sometimes our clients are really, you know, wondering — I got lots of questions about tariffs or about tax or what have you. Other — other times I’m — we’re — again we’re playing more of an active role in Washington from a — from a traditional government affairs perspective.
RITHOLTZ: So — so let’s delve into your work with the Investment Committee because I’m kind of fascinated about that. We have just — we’re recording this in — in early April. We’ve just had a run of — I — I — I can’t I can’t even use the word instanity anymore because we need different adjectives. But — but it’s been the trade war and it’s been the negotiations with North Korea.
And just this week we had the FBI kick the doors down to the President’s attorneys’ office hotel and home, and it’s just like there’s no escaping the news. It’s — it’s brutal. Now you go sit down with the Investment Committee. Is the discussion more from the perspective of here’s the macro issue of how these tariffs will impact these sectors or is it a broader — this is what sentiment looks like in response to these headlines or is it not limited to any of the above?
CANTRILL: Well, I think it’s — I think, in some ways, it’s all of the — all of the — the above. And I agree with you. It’s just been relentless, right? I mean, the new cycle over the last two years has been…
RITHOLTZ: Has not stopped.
CANTRILL: …you just — you just cannot escape it. You know, but…
RITHOLTZ: One guy — that one guy in Ohio who threw all those TVs out and hasn’t read a newspaper to you, other than him for the rest of us, it’s just…
CANTRILL: I know.
CANTRILL: Especially if you’re — you know, if you’re — if you have to follow the news as part of your job, I mean, of course, from a policy, from a walk and nerd position that I kind of think about myself as a policy nerd, it’s fascinating, right, because…
RITHOLTZ: Right.
CANTRILL: …this is a really dynamic, you know, really in some ways unpredictable policymaking environment.
RITHOLTZ: We — we can speak for an hour about the effect of the pass-through tax cut legislation of LLCs like…
CANTRILL: Right, exactly like…
RITHOLTZ: You want to walk out — we’ve spent three hours going over that.
RITHOLTZ: Given the fact that you’re — you began as a fixed income shop and what the Federal Reserve did and response to inflation has to be…
CANTRILL: Exactly, right.
RITHOLTZ: …so important.
CANTRILL: So — so the Fed response to inflation and growth and what is a big driver of growth, well, it’s the fiscal part, right? Of course, it’s other — you know, other parts of the economy, but that G in the GDP equation is — is pretty — pretty important.
RITHOLTZ: The gross part.
CANTRILL: The gross, right, yeah, the government part. Thank you, Barry.
Do we need to walk through the equation? Maybe. But — but — but — so anyway, so — so it’s always been something that has been a big consideration. We’ve — you know, we’ve talked about it, we thought about it, but clearly over really since the financial crisis when the intersection of politics and policy and markets have been more acute. I mean, going back to TARP, going back to Dodd-Frank and then, of course, the — you know, the housing bailout, the banks bailout, all this, you know — you know, what have you.
And then fast forward to today, when all of these — you know, what’s going on Washington really is driving markets. So, you know, I think we have the luxury in many ways of being a long-term investor, right? We’re a fiduciary for millions of retirees, for thousands of pension plans and what have you, so we really are not necessarily reacting to the news of the day so much. We are trying to construct a longer-term outlook about, you know, where we should be as it relates to say interest rates or credit or emerging markets.
And what’s going on in Washington drives, you know, all of those things arguably these days.
So — so take trade, you know, so the trade has been something that I’ve been talking about honestly and nauseam toward Investment Committee really since right after the election because I think people underestimated how sincere President Trump felt feels about trade, and I really — and you know this.
RITHOLTZ: Which is stunning to me because every speech he gave during the campaign…
CANTRILL: Exactly.
RITHOLTZ: …was, hey, NAFTA’s — I’m quoting the President, “NAFTA is a terrible deal. I don’t believe TPP is working for us. We need to change these rules and if no one is going to treat us fairly, we’re going to implement tariffs.”
Every time people say they’re surprised, it’s like were you not listening to any of this?
CANTRILL: Exactly, and you can even go back to the tape when he did interviews back in the 1980’s and he was talking about Japan cleaning our clocks on trade…
RITHOLTZ: Right.
CANTRILL: …about NAFTA, about China ascension to the WTO.
They don’t think a lot of public policy issues animated him before he became the president, but this was one of them. And I really think he sincerely believes that we’re getting short changed on these trade agreements, and he wants to rectify it.
RITHOLTZ: It’s been, you know, he’s pretty all over the place on so many subjects. If you’re going to give him credit for being consistent on anything, this goes back decades. There was an ‘05 interview with someone, maybe it was Oprah…
CANTRILL: Yeah.
RITHOLTZ: …where he’s talking about we’re not being treated fairly by other countries and our leaders are ignoring it.
CANTRILL: I think that was back in the 1980’s actually.
RITHOLTZ: Nineteen eighties, really.
CANTRILL: I think there are several — there are probably several interviews, but there’s one interview, I think, from 1987 or something with Oprah where he’s talking about Japan.
RITHOLTZ: He’s — I have the exact same feeling that you do. When people say, “Well, these tariffs are a shocker.” Really? He has been pounding the table about this for — now that you have to agree with the tariffs, but you shouldn’t be so surprised.
CANTRILL: You shouldn’t be surprised, right.
RITHOLTZ: Right?
CANTRILL: And so — and, you know, and — and — and, you know, you go back to 2017 and I think people thought, OK, well, will he hadn’t done anything in 2017 on trade, and I would be, I mean, not too pedantic but I would — I would take issue with that as well because if you actually look at what he was doing and what his trade representative Bob Lighthizer was doing, what Wilbur Ross was doing at Commerce, they were laying the foundation for these tariffs. So, you know, not to — not to bore everybody but to — before you can just pursue tariffs you have to go through this investigation process…
RITHOLTZ: Right.
CANTRILL: …and that’s, you know, several took, in this case, almost a year to do.
So, on steel and aluminum, that was initiated back in April 2017 and then, of course, they just made the decision most — more recently on — on how to — on how to proceed. But this — this felt pretty clear. This was…
RITHOLTZ: Yeah.
CANTRILL: …these were all — these things were coming.
RITHOLTZ: Let’s talk a little bit about the changing role of women on Wall Street. And — and I have to go back to a quote from Michelle Meyer. She’s one of the senior economists at Bank of America Merrill Lynch. And she made a specific point of saying, when she was coming up there were very few women role models for her to look up to and emulate as an analyst/economist, but it’s beginning to change. What are your perspectives on that topic?
CANTRILL: I — I think it’s — I mean, it’s changing but it’s at a glacial pace honestly. I think especially on the sell side in investment banks. If I — if I look back to when I entered finance back in 2000, about almost half of my analyst class were women, which was I think really notable at the time. I just don’t think, you know, what — what’s been, in some ways, discouraging is that over a time there been many women who have dropped out of finance. So it’s not necessarily that we’re not starting at the right place, it’s really a question of retaining them, and developing them, and promoting them and — and all of those things.
But — but, you know, to Michelle’s point it’s certainly I think the — the landscape is looking different, but also add the commitment among senior leaders. I think that, you know, our folks certainly at PIMCO, you know, from the CEO down are really committed to increasing diversity. And it’s not just lip service, it’s actually making sure that, you know, every interview slate has some — a woman on it at the very least, one and if not more.
It’s making sure that when we’re looking at promotion classes that they’re balanced. It’s making sure that we are looking to women for, you know, different opportunities instead of just — instead of maybe just — just sort of the conventional man. So I think we’re really trying to make a difference. But it’s — again it’s been — I think it’s been glacial. It has looked almost the last 20 years in finance. I had been involved in — I n financial services and we haven’t made as much progress as we really need to. But I do think it’s — I do think it’s changing.
RITHOLTZ: So — so I had a debate not too long ago with a friend from outside of the industry saying so when is — when is Wall Street having its Me Too movement. And my response was, “Hey, you know, things were really terrible in the 80’s and 90’s.”
CANTRILL: Yeah, right, exactly. I think it had it in some ways, yeah.
RITHOLTZ: And — and from my perspective trading desks were horrific and the lack of general respect for women in that period was awful, but you had a bunch of litigation in the boom boom room and all that crazy stuff And I think Wall Street has been woke long before the rest of the country did. Plus compliance, plus litigation, it seems Wall Street, at least in my career, has been ahead of other fields in terms of recognizing, “Hey, this is a problem. We better do something about it,” not that it’s remotely fixed…
CANTRILL: Right.
RITHOLTZ: …but there’s some awareness. Is that a fair…
CANTRILL: Yeah, I think that’s — I think that’s fair. However, if you look at the composition of management teams across Wall Street and the buy side, you don’t necessarily see as many women as you want to. So I think while we may not have the more draconian severe harassment issues or anything (ph) some of these other industries had that have been on earth recently, we still do have a real development problem among women and retention problem. And so that’s — the key is how do we make sure?
We can — we can get women in the door. You know, you can get women in the door 22 because they want to be investment banking programs, they want to go to the buy side, but how do we make sure that we’re getting them to the next step? And I think some of it is, you know, this — some of it is that women do have to have children biologically, right?
RITHOLTZ: Right.
CANTRILL: So making sure that we’re supporting women during that period of time and not just making sure that they have maternity leave, but making sure that when they come back that they’re supported, making sure that they don’t necessary miss out on a promotion or opportunity when they’re out on leave or when they’re really just in the fast lane of parenting. I think that — and — and, you know, the — the interesting thing at PIMCO is that we’re seeing these demands both from women but also from men.
I mean, a lot of men…
RITHOLTZ: Really?
CANTRILL: …in our New York office especially have working wives. And so, you know, they want to make sure that they have parental leave, that they have some flexibility to make sure that they can go to the preschool recital or what have you.
So, in some ways, you know, and this I don’t want to say that this — if you’ve kind of address these issues of mothering (ph) that you’re going to fix the problem, but that definitely is a piece in the puzzle that has to be addressed. And I think…
RITHOLTZ: So…
CANTRILL: …PIMCO, like other organizations, are trying to do that.
RITHOLTZ: So — so promotion and retention are — is it fair to say it’s just as important as pay parity and recruitment on the other end?
CANTRILL: I think — I think promotion and retention, in some ways, fixes the pay issue because…
RITHOLTZ: Oh, really?
CANTRILL: …a lot of times the pay issue is because you just have more senior men at the top. So if you get more women at the top, A, making these decisions about pay, but B, just making sure that there is just sort of balance about the distribution of pay. And, you know, some of these recent studies that have come out have, I think, conflated the issue, right?
So there’s this U.K. gender…
RITHOLTZ: Yes.
CANTRILL: …parity study that came out. At least in our case, because like every other financial firm, we had to — to publish it, what I think — you know, I don’t think we have a pay. I mean, it’s — it’s — it’s illegal to discriminate pay on gender, right? So it’s not…
RITHOLTZ: Well, yes and no.
CANTRILL: …necessarily — well, but in our case I can say is that it’s — it’s — it’s not about pay parity, it’s about making sure that you get more women at the top. So that distribution of pay doesn’t look so — so…
RITHOLTZ: So…
CANTRILL: …out of whack.
RITHOLTZ: So with the area that becomes gray or at least the people have been hiding in has been, all right, if you’re a Level 3 CFA and an analyst and you have five years experience, you would imagine that, plus or minus a small percentage, that pay level should be sort of comparable regardless of gender, what have you. But some of the complaints have been two people, maybe one person is covering tech and someone is covering a less sexy space like utilities, you end up with some pretty wild disparities in pay. And the defense has always been, well, it’s this sector versus that…
CANTRILL: Right, yeah.
RITHOLTZ: …or — or something along those lines. Is that still an issue that that people are hiding behind or is it solved simply by having more senior women at the upper echelons and upper pay scale at — at large firms?
CANTRILL: Yeah, I mean, look, I don’t — A, I don’t think there’s one silver bullet, and B, I can’t speak about other firms, but I can just speak about — about PIMCO. And we’ve — you know, we brought in third party auditors to make sure that we’re paying fairly in terms of somebody who has, you know, wearing the same role, the same level, what — what have you in the same function.
But again it’s the issue of making sure that we have women and leadership so, you know, those women are, you know, having the same opportunities and are getting those big paychecks that men have been getting historically. So I — again I don’t want to say that there’s one — you know, there’s one way to solve this, but I do think that developing women and promoting them and getting them into these decision-making roles is — is super important.
RITHOLTZ: Your offices are in New York, right? You’re not in Newport Beach, you’re in the New York office.
CANTRILL: I am in New York, yes. And so…
RITHOLTZ: Right, that office — that Newport Beach location is…
CANTRILL: Is pretty nice.
RITHOLTZ: …about as beautiful as a place…
CANTRILL: It’s very nice, yeah.
RITHOLTZ: Yes.
CANTRILL: You can — you can imagine that a lot of my — my business school friends think I’m just nuts for working in New York versus Newport Beach, but, of course, New York is closer to — to Washington.
RITHOLTZ: That makes — that makes perfect sense for your drill (ph). So let — let’s talk about Washington and let’s talk about your role. Is it more government affairs in D.C. or is it more, hey, Investment Committee, here are some issues you need to be aware of.
CANTRILL: I think it’s honestly it’s just both, and it really depends on the environment. So you can imagine back a few years ago after Dodd-Frank was — was implemented and, you know, all the regulatory agencies were deciding the rules of the road for derivatives and other things that that matter from our perspective. It was more of a traditional government affairs role.
We were educating folks in Washington. We were trying to, you know, make our — you know, make our arguments about, you know, what they — they — what they should — kind of the direction of that policy should go in.
But now just given what we’ve been talking about, you know, how news worthy and eventful, event-driven this — this administration has been, it’s been more on — on the investment side.
RITHOLTZ: So, we have a tragedy like the Parkland School shooting, and these things normally fade pretty quickly. That seemed to have legs and really seem to — to last awhile. How do you integrate something like that into the Investment Committee?
I know BlackRock is talking about a — a gun-free fund and other such things. How do you deal with something along those lines?
CANTRILL: So — so that does not necessarily impact us as much. I mean, you might have separate specific sectors that are impacted, but from a macro perspective, you know, gun legislation does not necessarily going to impact the growth of the economy or the Fed’s…
RITHOLTZ: Right.
CANTRILL: …next move, right? So, most of the things from a pure kind of top-down macro perspective are the things that are going to be driving growth and — and inflation and, you know, gun policies not necessarily, but it could obviously impact more of a bottom-up analysis.
RITHOLTZ: So — so let’s — so then let’s talk about something that could impact theoretically the economy. You had a very interesting set of comments about the tariffs and saying this is a $16 trillion economy, these are $100 billion or $150 billion worth of tariffs. Explain what the thought process is and how that gets digested by the group running investment?
CANTRILL: Sure. So, you know, the — the — the same that you’re referring to is really based on the $50 billion, so the initial set of tariffs that President Trump had announced as part of this investigation into China’s, you know, potential sort of tenuous use of American intellectual property. $50 billion is not going to really be too much of a headwind on the economy, right?
We say a tenth of a percent perhaps in terms of a drag on GDP, that’s really dwarfed by the more pro-growth things that we have seen from this administration including, of course, the tax bill which has gotten a lot of news, but also something that hasn’t really gotten I think as much attention in the media, which has been the spending bill. That was approved, you know, earlier this year and that adds about, you know, 30 basis points to real GDP growth and path (ph).
RITHOLTZ: Surprised everybody.
CANTRILL: And so, yeah, I mean maybe not us but — but we — we knew it was coming honestly. I think that the size of it was surprising.
RITHOLTZ: Right.
CANTRILL: We were thinking more sort of 20 basis points, but the fact that it is up to the kind of the — the three-tenths of a — of a percent in terms of world GDP, we’re talking about really, you know, a significant impulse from Washington so about six-tenths.
So if you talk about one-tenth of a drag, well, again still the good outweighs the bad. I think the big question, however, is do these $100 billion of tariffs do — in addition to the $50 billion or do we proceed with those? And then of course, the big question is what does China do in — in retaliation?
And that — there’s just a lot of uncertainty around it. But to our earlier — to our earlier discussion, I just — I — I think it’s going to be a much more significant concession from China for this administration to back off. I think people who view this as sort of symbolic posturing, just trying to get China to the negotiating table in an easy win are again really underestimating what — how President Trump feels about this issue and the folks that he has in charge.
I mean, Bob Lighthizer is an incredibly, wildly credible U.S. trade representative who knows the law and was behind many of the more protectious (ph) measures against Japan in the 1980’s. So I would take it, I would take the — I would take, you know, President Trump very seriously on these issues.
RITHOLTZ: Do you ever find yourself looking at the reaction at — elsewhere on the Street that they’re not taking this? Of all the things, like I think the wall is never going to be built, I don’t think anybody…
CANTRILL: Yeah.
RITHOLTZ: …really cares about the wall, but the protectionism and the tariffs, I’m surprised people are surprised.
CANTRILL: Yeah, exactly. I’m surprised there is a surprise. So my — my — my husband trades equities, and we have some, you know, pretty interesting dinner conversations. And all of 2017 he’s like, “Oh, you’re such a bear about the trade policy and the protectionism and the, you know, potential trade war. But again, I mean, to — to our — to our discussion, we needed — this — this was so clearly telegraph to the market that this was going to happen. It was just a question of when and not if that sometimes the equity market does — you know, it’s — it’s fuddles us. And I think it fuddles me and so I think it fuddles other folks (that think of).
RITHOLTZ: So let’s hold the equity market aside and look at the fixed income market. We now are back to trillion dollar deficits, the first time in about six or seven years. The $19 trillion collected total debt, I’ve seen all sorts of forecasts from $25 trillion to $30 trillion. Whatever it is, it’s a lot of money and deficits tend to impact the bond market. How are you advising the Investment Committee of here’s what deficits are going to mean for inflation, for credit availability and for where yields may end up?
CANTRILL: Yeah. And this is — I mean, this is one where I’m really just an input and it’s really their analysis and discussion that will lead to that in terms of how it impacts our positioning, but it — but it is one of the reasons. And our view is that, you know, the spending bill was going to happen and that there was going to be, you know, some — more fiscal profligacy than, I think, people had — had maybe expected. This is going to sort of have a dampening effect on growth over the long-term.
So, you know, again we have the benefit of being long-term investors. We think three things — you’re on a cyclical sort of six to nine months basis, but we also have the luxury of thinking things through on kind of a three to five-year basis. And this is the genesis of our new neutral and, you know, new normal kind of paradigm that we think this is one of the reasons why rates are structurally going to be lower because you’re probably going to have a dampening of, you know, on growth because of these — these, you know, kind of overhangs because in a — of course, in a — in a time of recession or, you know, down — you know, or downturn, the — the sort of the fiscal side will have less capacity to actually step in because of these big deficits. So they’re running good times.
I mean, as you know, this is a very unusual…
RITHOLTZ: Yes.
CANTRILL: …approach, right? To me…
RITHOLTZ: Right.
CANTRILL: …adding all of this kind of fiscal dues at a time that, you know, the economy is actually doing pretty well…
RITHOLTZ: To one percent unemployment, yeah.
CANTRILL: Right, so to add it late in the — the economic cycle, we think what might preclude policymakers from stepping in when actually the economy (inaudible).
RITHOLTZ: This would have been better time had it been six years earlier or fill in the blank three, four, five years later whenever the next recession hit.
CANTRILL: Yeah, you know, we — you know, we don’t like taking normative view on policy, so we’re not telling policymakers what they should do or what they shouldn’t do. What we say is if you do this, this is how the market will react and this is how the economy will react.
RITHOLTZ: Right.
CANTRILL: So, you know, it should’ve been done later. You know, who knows? But certainly I think the practical impact of it being done now is that means that policymakers have less flexibility longer-term.
RITHOLTZ: So, pro-cyclical stimulus is different than counter-cyclical stimulus…
CANTRILL: Yes.
RITHOLTZ: …pretty — pretty (inaudible).
CANTRILL: Econ101 (ph), right?
(LAUGHTER)
RITHOLTZ: OK. So — so let me ask you, Econ102 (ph) question, how long — you’re right at the — the intersection between Wall Street and D.C., between public policy and finance. How long does it take for the markets — we’ll hold the — the efficient market hypothesis the side for a moment — to actually understand what’s taking place in D.C. and reflecting in prices? Because I’m thinking about your husband’s comments…
CANTRILL: Right.
RITHOLTZ: …on…
CANTRILL: Yes.
RITHOLTZ: …oh, what is this — all this tariff chatter in 2017 when it’s not charter it’s going to happen…
CANTRILL: Right.
RITHOLTZ: How long does it take for the markets to actually digest and — and adjust to these big issues? It seems some things take a long time to work their way in.
CANTRILL: Yeah. And I think — I think that — that’s absolutely true, although it really is important to define which markets you’re talking about obviously, right? So, the equity market which we just have less interaction and because we really manage primarily fixed income assets seems much more reactive to these headlines.
And — and arguably things are more, you know, certain sectors are more price for perfection, so they are probably more vulnerable to sell-offs when you do have a negative headline whether it’s trade or something else.
I think the fixed income market has been maybe a little bit more deliberate, a little bit more thoughtful about internalizing some of these policies. You see, I think, less dramatic moves from — on headlines. Anything you see kind of less — you know, less volatility and again it’s what the drivers are of — you know, of fixed income versus — versus equities. But I think that the — the fixed income market has it been more — a little bit more immune to what’s going on in Washington.
RITHOLTZ: We have been speaking with Libby Cantrill of PIMCO where she is the Head of Public Policy and Government Affairs.
If you enjoy this conversation, be sure and check out our podcast extras where we keep the tape rolling and continue to discuss all things policy wonk and market-related. You can find that wherever Finer Podcast are sold — Apple iTunes, Overcast, SoundCloud and, of course, bloomberg.com.
We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. You could follow me on Twitter @ritholtz or check out my daily columns at bloombergview.com. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.
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RITHOLTZ: Welcome to the broadcast. Thank you, Libby, so much for doing this. This has really been quite fascinating and we’ve been trying to get you scheduled for some time.
Before I get to my favorite questions, there are — there are a handful of other questions we didn’t get to that I’m really — I really want to just — just get a few — a few moments on. And — and it’s mostly politics.
So, the first question — and I think and this is a pretty standard issue, how should investors think about politics and how it relates to their portfolios because we — we get emails about this all the time?
CANTRILL: I know, and I wish I had a — I wish I had a one — one simple straightforward way of thinking of it. I mean, I think in some ways, you know, investors, I think, hope the politicians are about a base level, do no harm, right?
RITHOLTZ: Fair statement.
CANTRILL: They don’t — they don’t really get in the way of — of markets. I think that the sort of second order is that they hope that politicians actually do something for economic growth for a longer-term viability and — and what have you. And then I think the sort of flip side of that is really what they can do to — to hinder markets and the economy. And — and, you know, not –it’s — it’s probably too reductive to characterize the past 10 years any one way, but it has been more of, I think, a headwind just to markets and — and, you know, maybe to growth than — than the typical investor would — would — would like it to be.
RITHOLTZ: Meaning, things like deficits or tax hikes or wars in Iraq or just the whole gestalt.
CANTRILL: And just the — I think the noise coming out of Washington really, right? I mean, I think the fact to that bipartisanship isn’t necessarily lost, but it’s definitely on ice at least for awhile that we’ve seen more manufacturing crises, whether it’s the debt ceiling crisis or — or government shutdowns or just as real lack of comedy and lack of, I think, constructive engagement between — between the two parties…
RITHOLTZ: And these are all…
CANTRILL: …in order to actually address really longer-term issues like our entitlements issue, which has become so polarized but having worked on the hill. There’s some really easy ways to address this that are actually quite bipartisan that if a centrist coalition came out, I think, put something forward and the political environment was different, it could actually affect change. But it’s really the kind of the lack of — of political will, of political courage and, in some ways, just the — the lack of even discussion between — between the two parties.
RITHOLTZ: It seems that a lot of these are unforced areas (ph) and self-inflicted wounds.
CANTRILL: I mean, for sure, yes. I mean, and — and so I just — so again, you know, I don’t — it’s not only are they not doing no harm and maybe it’s not — it’s not sort of short-term harm but in the long run, you think that you really have to have the courage of your convictions and discourage in general in order to address some of these really longer-term big issues like we’re — that we’re talking about either it’s the debt issue, it’s the entitlement issue, it’s investment in education or infrastructure, what have you. That — that’s that — that takes courage and then also you risk not getting reelected. And I think we don’t have folks who are — have that kind of long-term view.
RITHOLTZ: The — the thing I’m shocked about, you said, do no harm for our second, put — put in place in pro-growth policies. If there’s anything that’s pro-growth and has some bipartisan support, you know, it’s an infrastructure spend…
CANTRILL: Yeah.
RITHOLTZ: …and yet nobody seems to be able to get anything through.
CANTRILL: I know it’s been frustrating, right, because it’s something that was contemplated under President Obama, and it was certainly obviously contemplated on the campaign trail. And I think if…
RITHOLTZ: Both candidates.
CANTRILL: Both candidates. And I — and — and to your point, you know, everybody — every member of Congress likes to bring home some goodies for their own district.
RITHOLTZ: Sure.
CANTRILL: Right? And then…
RITHOLTZ: That’s how it works.
CANTRILL: …there’s one thing that, you know, I would say and again there’s not one explanation for why there has been a lack of bipartisanship, but the — the elimination of earmarks and this is going to be the unpopular thing to say but, you know, these are the things that the members…
RITHOLTZ: That horse trading forced…
CANTRILL: Yeah.
RITHOLTZ: …some sort of some middle ground, yeah.
CANTRILL: It forces some middle ground, and it really precludes sort of the ideological wings of both parties from, you know, sort of abandoning their party and from not voting for something. So it basically…
RITHOLTZ: Talk about…
CANTRILL: …brings people to the table and it allows compromise. And I really fundamentally believe and, you know, to — to the — to the credit of policymakers in Washington, I actually think this is a widely-held belief that compromise is really central to governing. I mean, it’s because they’re a statement of the obvious, right?
RITHOLTZ: So…
CANTRILL: But you need to bring those folks. You need to — you need to incentivize them to compromise and earmarks was a way to do that.
RITHOLTZ: So talk about unintended consequences of — of rule changes. Did — did anyone raise the objection that if you get rid of earmarks you’re eliminating the ability for people to horse trade across the aisle?
CANTRILL: Exactly. And — and it’s — it’s been something that has been discussed behind, I think, closed doors recently, but — but it’s so — the optics of bringing back earmarks, I think…
RITHOLTZ: God.
CANTRILL: …would be so bad…
RITHOLTZ: What a perfect headline.
CANTRILL: …but it’s because one percent of discretionary spending is such a small part…
CANTRILL: …spending. Discretionary spending, of course, is only a third of all government spending because two-thirds is entitlement spending. So we’re talking about a really de minimis…
RITHOLTZ: Is that right, two-thirds…
CANTRILL: Is entitlement spending, yeah? The $3 trillion — it’s about $1 trillion (inaudible) of discretionary spending.
RITHOLTZ: And how — is it — isn’t military a big chunk of that also?
CANTRILL: Yeah, it’s about $500 billion of discretionary, so it’s about half of discretionary as it goes to military.
RITHOLTZ: Really? That’s a (inaudible).
And you — you — you look at sort of the inflection point of when all of this partisanship happened, and maybe it’s just totally coincidental, but it really was around 2010. It was partly because of the tea party, of course.
RITHOLTZ: Right.
CANTRILL: But again, there wasn’t an incentive to bring them to the table because there weren’t those remarks anymore.
RITHOLTZ: And — and my last question before I get to my favorite questions, your role at PIMCO is so central to dealing with policy and the — and the — the investment side, how do you not let your own personal politics interfere with your process?
CANTRILL: Yeah, well, something that I, you know, I think like every investor who’s covering their own sector, they really try to do it in a dispassionate objective way, I think, because politics is so visceral, it’s so emotional, it’s may be harder to do. But I really — and it goes back to our view that we don’t have –we don’t have a normative view about how things should be, it’s were trying to, you know, react to how things are and predict how things will be, again not how they should be.
So that — so that’s — that’s — it makes it easier because I’m not projecting my own kind of views on what a policy direction, I’m sort of saying, OK, this is what is likely to happen and this is how the market will react to it. And I view that a very similar role as any sort of credit research analyst who’s looking at another sector, dispassionate objective but, you know, it’s a harder just given — given the topic.
CANTRILL: I think I’m woefully unprepared for this, by the way.
RITHOLTZ: Just pre-associate the first thing that comes into your mind. Tell us the most important thing people don’t know about your background.
CANTRILL: I’m a huge Denver Broncos fan. No, I — I…
RITHOLTZ: Not a surprise considering where you grew up.
CANTRILL: …I’m from — I’m from Denver. You know, I — I — I struggle with all these questions this morning. I struggled with that one. You know, I think it’s — I think it’s something and we talked a little bit about this that you’re taking these risks early on your career. And it’s me I talk to — about especially to younger women who are — who are coming into finance, but, you know, taking risks — it’s taking calculated risks is just — is just important. And I did that when I left finance temporarily to go to Washington.
And then I helped, you know, in some ways create this role at PIMCO, this role had never existed before. And if I hadn’t spoken up, if I hadn’t made the case for why this was important from a business and an investment perspective, I, you know, wouldn’t be here today.
So I — so I don’t know whether this is something that I want people to know about me, but I — I do think when reflecting on my career, it’s something that’s held me in good stead, by taking calculated risks, by speaking up and, you know, but I sort of — by — by risking failure and I think that’s a — that’s a hard — that’s a hard thing to do.
RITHOLTZ: Tell us about some of your mentors, who helped guide your career along?
CANTRILL: Well, so, you know, my — my — I have to say my — my — my mom is important because my parents got divorced, my mom had it worked. And she went back to work at a pretty difficult time because she had to. And I think seeing her — her kind of resilience and her grit, you know, just sort of solidified the importance of — well, for — so solidified the importance of work for me.
But I think as a — because she is a woman, you know, my view is that the work is just really important. It gives you — obviously it gives you, you know, some professional identity but it also gives you economic independence. And I think that was certainly, you know, underscore to me during this kind of experience growing up.
And then, you know, later on this member of Congress who I worked for in the — in the state legislature and then later in the House of Representatives, she really, in some ways, exemplified what I hope I am now. You know, she was a real professional. She was dedicated to her work she was ambitious, but at the same time she was a mother and she was, you know, a friend and a wife. And all of those things, I mean, again sounds kind of cheesy but to see that, and I really do believe and we’re talking about this about, you know, woman mentors in — in Wall Street, but you have to — you know, you can only be what you can see.
And I think see working for this woman when I was a teenager and sort of seen her struggle with parenthood and running for Congress, you know, really just again kind of reaffirm that you can do it, it’s just it takes a lot of hard work and persistence.
RITHOLTZ: Let’s talk a little about books. You have to travel a decent amount of work.
CANTRILL: I do travel, yes.
RITHOLTZ: What — what do you read for — other than those PDFs that — that get produced by PIMCO, what do you read for pleasure, either fiction, non-fiction, market-related or not?
CANTRILL: Well, I would — I read both, right. So I read — in terms of nonfiction, I read a lot of presidential history, which I think has been, in some ways, reassuring or interesting during this period of time just sort of see, you know, read about what we went through in the 19th century or — or what have you…
RITHOLTZ: Give us — give us a few titles.
CANTRILL: …how — how chaotic that has been.
Well, so — so I just — I just downloaded Grant by Chernow.
RITHOLTZ: Right, everybody loves that.
CANTRILL: It’s so supposed to be — supposed to be amazing. And then on the other hand, I — I like to read fiction, too, because to what we were talking about earlier, there’s just been no escape from the new cycle.
RITHOLTZ: Right.
CANTRILL: And so to read and I was, you know, read Fire and Fury, it just like…
RITHOLTZ: No.
CANTRILL: …it’s too much, it’s too much.
RITHOLTZ: That’s — just close your right…
CANTRILL: Is it right back in there?
RITHOLTZ: I — I — I had the exact same reaction to you. I read the first 30 pages, and I’m like, “Wait, now I’m doing this when the TV is off, it’s too much.”
CANTRILL: I know, I know. I ended up — I ended up feeling I had to read it for my job, but it wasn’t necessarily for pleasure. I felt like…
RITHOLTZ: Right.
CANTRILL: …it was more of a work assignment than anything else.
So, you know, I like novels, but honestly, I think like other folks have said, you know, being a worker — working and traveling and then being a parent doesn’t allow me a lot, and then we’re having to read the news. So honestly…
RITHOLTZ: Yeah.
CANTRILL: …I go to bed reading Twitter and I wake up reading Twitter, which is I don’t think it’s healthy long-term.
RITHOLTZ: No, it’s definitely not healthy. Well, unless you mute with — with great extreme prejudice, if you’re muting people who are just — I can’t read another screed and threaded fast, I’m just — I’m done with this guy, unless you are an aggressive muter…
CANTRILL: Yeah, it’s…
RITHOLTZ: …it’s just painful.
CANTRILL: It — yeah, yeah, it’s — it doesn’t feels just relentless.
RITHOLTZ: So — so tell us what has changed over the course of your career within finance. Are you seeing progress or is it still a glacial pace of change?
CANTRILL: You know, I think again, you know, going back to our discussion, always about gender and just about diversity in general, you know — you know, ethnicity and what have you. I think that has been glacial. I don’t think that looks very different, but — and a big but here, I think there is much more of a commitment of an awareness, commitment on boards, commitment Pennsylvania my management teams to actually change things and not — again not just creating a woman’s network and having women, you know…
RITHOLTZ: Right.
CANTRILL: …talk over glasses of wine about whatever. It’s really about, you know, a fundamental commitment to change. And I think that does feel like it’s changing and, you know, I think the data has — is really compelling on this. And this is what we’ve been trying to make the argument to other folks, and our clients are making this argument to us as well is that diverse teams lead to better outcomes…
RITHOLTZ: Yes.
CANTRILL: …from a performance, from a — from a financial perspective. So this is not just a question of what would be nice to have, this is a question of a must have because…
RITHOLTZ: Right.
CANTRILL: …it really drives the bottom line.
RITHOLTZ: Avoid group think is never a bad thing.
CANTRILL: Exactly, right.
RITHOLTZ: Tell us about a time you failed and what you learned from the experience?
CANTRILL: Oh, gosh. I mean, I feel like I fail every day. You know, I — I — you know, I joke but I do feel, in some ways, again I think it’s just a juggling — you know, not to — to put too much of a point on this, but having two small children and trying to do what and, you know, we haven’t talked about this but I also co-head our New York office here, and so I just I have a lot of my — a lot of my play. And invariably, I feel like I’m letting somebody down, I’m not doing something whether it’s — and unusually work takes priority over — over my kids even though my kids are my — of course, my number one priority and so is my husband if he was listening to — to this, I just got to go.
RITHOLTZ: It’s toward the end of it.
CANTRILL: Don’t put that in there. He’s not — he’s probably tuned out.
RITHOLTZ: Right, it’s toward the end of this.
CANTRILL: He only have me on mute.
RITHOLTZ: It’s just you, me and…
(LAUGHTER)
…and a couple of pigeons. Nobody else is paying attention.
CANTRILL: But — but, you know, I mean, I — you know, again not to kind of be trite, but I think that you just realize that nobody has — going into — to — to working — starting to work at 22, you sort of think that you look up to the — especially the women at 30 or 40 and they think that they haven’t figured out. I think as I realize I just turned 40, you just realize that you never figured this out, and that’s OK and that you sort of have to give yourself the freedom in order to — to fail, but also to rectify things.
So, you know, I just keep — I keep just trying. And trying is — you know, and I — that’s again a kind of lesson for my mom is that you just, you know, persistence is important, and I think persistence can get you — can get you far.
RITHOLTZ: What do you do outside of the office to relax and just kick back?
CANTRILL: I go to my — my six-year-old’s karate — karate classes? You know, again there’s a — I mean, I do — and I — I really I do have a lot of — I spend a lot of time with my kids on the weekend, of course. You know, I try to — I try to work out, but I have a three and six-year-old, so they’re pretty unforgiving.
When I’m — when I’m around…
RITHOLTZ: Right.
CANTRILL: …they — they — you know, they want my — they want my time.
But, you know, I think — I wouldn’t have it any other way, right? I wouldn’t have it. I think that being a mom makes me a better employee and be an employee and be having — having a career makes me a better mom. So it’s — it’s hectic, but I — I won’t do it any differently.
RITHOLTZ: So what sort of advice would you give to millennial or a recent college graduate who is considering a career in finance?
CANTRILL: Yeah, that’s a — that’s a good question. I mean, I — you know, I think…
RITHOLTZ: By the way, these are all related questions.
CANTRILL: I know. They are — they are all of it. That’s yet — that is yet another good question really. You know, I — you know, I — what I think is — and I — I see this, you know, in our — in our New York office that has even a more disproportionate number of millennial — millennial folks, but that their voice is really important. And I think what we’re seeing — we are seeing this in Parkland, right, is that, I guess, they’re not — that’s not technically the millennial generation, but — but what have you.
But that this kind of younger generation with a fresher perspective is really important. And I think they need to be realistic about how much they can change in organizations, but that shouldn’t necessarily prevent them from speaking up from trying to make change.
And we — we found that in our — I was in our New York office at PIMCO that we’ve really — a lot of the change that we’ve instituted the last two years from a cultural perspective has come from those folks because they’ve made suggestions, and they have a totally different perspective. And I think growing up the social media is just totally changing this generation and their — and their perspective and I — and I think is moving these sort of, you know, not — not — you know, this kind of older more traditional organizations in a — in a really positive way.
So I would say, you know, join — don’t — don’t be discouraged by sort of financial services. Join financial services, but also be prepared to — to speak up and try to make some change.
RITHOLTZ: And our final question, what is it that you know about the world of investing and public policy today that you wish you knew 15, 20 years ago when you came out of business school?
CANTRILL: Wow, I mean, I think it’s changing every single day. So it’s — you know, I think, you know, in some ways — in some ways I was lucky, right, because I think I saw that Washington didn’t speak Wall Street language, and Wall Street didn’t speak Washington language. So I think in 50 — 15 years back I wish I had more confidence that that was really the case that there was really a need for this.
And I think what we’re — you know, what we’re seeing here is that markets really are influenced by what’s going on in Washington and — and — and policymakers. So, I don’t know (inaudible) what I wish I knew, but I — but I — but again, you know, this bridge between the two is really important, I think will become even more important going forward.
RITHOLTZ: We have been speaking with PIMCO’s Libby Cantrill. She runs the Office of Public Policy and Government Affairs at PIMCO.
If you enjoy this conversation, be sure and look up an inch or down an inch on Apple iTunes, Overcast, SoundCloud, wherever you find your favorite podcasts and you could see any of the other 200 or so such conversations we’ve had.
We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net.
I would be remiss if I did not thank my crack staff that helps put together these podcasts each week. Medina Parwana is our audio engineer/producer. Taylor Riggs is our booker. Michael Batnick is my head of Research.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
VOICE-OVER: Masters in Business is sponsored by Harvard Business School Executive Education, offering four comprehensive leadership programs that transfer rising executives into competent business leaders. To learn more, visit hbs.me/transform. That’s hbs.me/transform.
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