Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
PIMCO's Mohamed El-Erian visited with CNBC this morning, and offered his usually interesting thoughts on the macro economy and investment themes. Interestingly, he touted precious metals in this interview (relative to equities) which is the first time I've really heard him tout them.
8 minute video – email readers will need to come to site to view:
- This year's market gains will need more than an improving economic picture and investor willingness to shrug off the European debt crisis, Pimco's Mohamed El-Erian said. "It's too early to declare victory," the co-CEO for the world's largest bond fund told CNBC in an interview Tuesday.
- He outlined three issues that must be addressed if the 2012 rally is to continue:
1) Geopolitical risk that remains both in Europe and the Middle East.
2) A "handoff to more sustainable policies" beyond the monetary easing from the world's central banks.
3) Getting "long-term investors" off the sidelines and putting their money to work in riskier assets than bonds.
- As those headwinds remain, El-Erian advises investors to dedicate a smaller portion of their portfolios to stocks and a larger allocation toward precious metals. On bonds, he advocates shorter duration, with a target of seven years or less, which is where the Federal Reserve has focused its debt-buying efforts.
- "They're both willing and able," El-Erian said of the Fed and other central banks and aggressive monetary policies. "The issue is the effectiveness. Even the central bankers are beginning to announce that it is not just about the benefits, it's also about the costs and risks."
- "The central banks are absolutely committed, but we must not extrapolate that they will remain highly effective," he continued. "They need help. They are a bridge and they have to be a bridge to somewhere. So far the other government agencies are on the sidelines."
- "There's more to do," El-Erian said. "It's critical that nothing be done to interrupt this wonderful cyclical bounce. We want the cyclical bounce to translate into a secular bounce, because that's what the markets need to sustain the wonderful returns so far this year."
- El-Erian contrasted the situation in Europe from the Lehman Brothers collapse in 2008, and said that while central banks "have become much more proactive" with refinancing operations, the current economy may not be as prepared for economic shock. Regarding the "Lehman moment," El-Erian said, "If you define it as the economy being able to take the shock, that's in fact a higher risk because we are in a worse place than we were in '08."
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