Markets

Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

How many famous thinkers does it take to blow up the global economy, at least hypothetically?

Five, evidently. Or so it seems by Pimco’s creation of a new global advisory board composed of intellectual heavy hitters, including former Federal Reserve Chairman Ben Bernanke, former U.K. Prime Minister Gordon Brown and former European Central Bank President Jean-Claude Trichet.

This group is uniquely positioned to imagine every possible way the global economy can go sideways after years of unconventional monetary policies. These are the policy makers who shepherded the world’s biggest economies through the financial crisis and know firsthand just how messy the process can be.

Pimco’s decision to assemble this undoubtedly expensive team at this time highlights a growing paranoia in global bond markets. Investors are becoming jumpy as central bankers plow into uncharted terrain, with a growing pool of negative-yielding bonds in Europe and an attempt to move away from zero interest-rate policies in the U.S.

Changing Policies
Short-term U.S. yields have been rising as the Federal Reserve debates when to raise rates.
Source: Bloomberg

Citigroup’s chief economist is predicting a global growth recession in 2016. Distress is spreading in lower-rated corporate bonds.

Many want to know all the potential iterations of catastrophe. What if everyone is wrong and inflation accelerates rapidly and suddenly? What if the global economy tips into recession? What if oil prices fail to meaningfully recover in the next two years? How would central bankers respond to these scenarios?

The team’s creation was probably aimed in part at filling a void left by former star fund manager Bill Gross, who was pushed out of the $1.5 trillion asset manager last year and subsequently went to Janus Capital. The group also includes Ng Kok Song, former chief investment officer of Singapore’s GIC, the sovereign wealth fund that oversees more than $100 billion, and Anne-Marie Slaughter, a former director of State Department policy planning.

Deflating Prices
An index of commodity values, from corn and gold to oil and gas, has plunged.
Source: Bloomberg

It has a lot to work with, potential disaster-wise. Brent crude fell below $40 a barrel for the first time in almost seven years. A Bloomberg Commodity index has fallen to the lowest level since 1999. This casts doubt over how much inflation can tick up, even after policy makers pumped trillions of dollars into the financial system to rescue it from the worst downturn since the Great Depression.

It may just be the unexpected events that undermine even the most-conservative investors. Pimco can benefit by just putting this dream team in a room and letting it come up with every nightmare scenario.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net