Beyond the Base Case: Preparing for the Unexpected
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Marc Seidner:
It would seem as if this is certainly an environment where you want to run a risk management exercise.
Text on screen: Marc P. Seidner, CIO Non-traditional Strategies
Think about multiple possible scenarios. Probably expect that the base case might be the least likely, the least likely outcome and tail scenarios have much higher probability than you might have thought in the past.
Are there any other risks or themes that you think about that we haven't touched on yet today?
Dr. Ben Bernanke:
Well, I think I'd reiterate first that the Fed really is projecting at this point a soft landing normalization.
Text on screen: Dr. Ben Bernanke, Former Fed Chairman and Senior Advisor to PIMCO
This is not really an easing in the sense of going to very low interest rates. This is about getting back to a normal level of interest rates. And clearly there’s risks on both sides of that and you need to take that into account. We could have, inflation could pick up a little bit, unemployment could be worse than anticipated. You have to think about the different options. There's political risk, obviously. And I guess I think it should be mentioned that there's also geopolitical risk. My experience is that markets are just not very good at anticipating the consequences of geopolitical events of various kinds.
And of course the world is in many ways a dangerous place. And there is certainly there are risks out there that would have not only political and geopolitical consequences, but economic consequences as well. And I think that as you do due diligence and as I know PIMCO does, you try to think about those scenarios as well as the economic scenarios that that might be off the main scenario.
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