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HenryTo
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HenryTo
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 Posted: Sun Jun 14, 2009 2:31 am Post subject: |
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PIMCO's CEO Mohamed El-Erian asserts that the Fed will ramp up its purchases of US Treasuries in the very short term. My sense is that the Fed will continue with its recent trend of tampered purchases, unless oil declines back to the $65 area or the stock market suffers another correction:
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PIMCO: Fed to "engage again" in Treasury buys
Fri Jun 12, 2009 5:00pm EDT
By Jennifer Ablan and Daniel Burns
NEW YORK (Reuters) - The rapid rise in bond yields will force the Federal Reserve to "engage again" in the purchases of U.S. Treasuries and mortgage-backed securities, Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., said Friday.
The surge in Treasury yields is lifting mortgage rates, threatening to dampen home demand and kill off the refinancing boom that is bolstering the health of some households.
"What mistake can the U.S. economy afford to make? If you look at it that way, I suspect that we will see the Fed engage again in these markets," El-Erian, who oversees $756 billion at PIMCO, told Reuters Financial Television.
Debate is brewing within the Federal Reserve over whether it should ramp up its purchases of Treasuries and mortgage-backed securities to keep a lid on interest rates, or scale them back to avoid an outbreak of inflation.
Massive buying of securities by the U.S. central bank has doubled the size of its balance sheet to around $2 trillion as it flooded the economy with money to prevent a severe recession getting worse.
The Fed's Open Market Committee voted unanimously in April to keep unchanged its targets for purchases of MBS and long-term Treasuries. But the panel left the door open to increasing purchases at future meetings if needed to secure a stronger recovery, according to minutes of the meeting. The FOMC next meets on June 23-24 in Washington.
DOLLAR, JUNK BONDS VULNERABLE
Investors' fears in the United States and abroad are rising about the health of America's economy, owing to its need to borrow for stimulus programs. That will keep the U.S. dollar under pressure, El-Erian said. "We could be embarking on a multiyear process of erosion, at the margin, of the global standing of the U.S."
The United States faces competition also from Brazil, Russia, India and China, which account for 15 percent of the $60.7 trillion global economy. El-Erian said the so-called BRIC nations, which are meeting next week for their first formal summit, are increasingly pressing the case for "a larger role on the global stage, as they should."
High-yield "junk bonds" and equities are also vulnerable, El-Erian added. As an example, the roughly 40 percent rise in the Standard & Poor's 500 index since early March has been "excessive" and not supported by economic fundamentals, he said. "The last part of the rally in a lot of risk assets ... was exaggerated" by hedge funds and fund managers chasing performance, he added.
El-Erian said PIMCO has been a buyer of high-quality corporate bonds and short-maturing government bonds in the United States and abroad, arguing economies still face major headwinds including a fragile labor market. He expects the unemployment rate in the United States to reach between 10 percent and 10 1/2 percent.
"Over the immediate next few weeks, we think Treasuries at this point had oversold, particularly front end of curves around the world had oversold," El-Erian said. "We do not believe the Fed, European Central Bank or the Bank of England will be hiking rates any time soon. We have found value in the front end of the curve." |
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rffrydr
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| Posted: Wed Jun 03, 2009 12:49 am Post subject: |
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_________________
Today is the Tomorrow you worried about Yesterday! |
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HenryTo
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| Posted: Tue May 26, 2009 9:11 pm Post subject: |
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PIMCO's latest secular outlook, by its CEO and Co-CIO Mohamed El-Erian:
http://www.pimco.com/LeftNav/PIMCO+Spotlight/2009/Secular+Outlook+May+2009+El-Erian.htm
| Quote: | The New Normal
For the next 3–5 years, we expect a world of muted growth, in the context of a continuing shift away from the G-3 and toward the systemically important emerging economies, led by China. It is a world where the public sector overstays as a provider of goods that belong in the private sector. (As one of our speakers put it, we have transitioned from a world where the private sector provided public goods to one where the public sector provides private goods.) It is also a world in which central banks and treasuries will find it difficult to undo smoothly some of the recent emergency steps. This is particularly consequential in countries, such as the U.K. and U.S., where many short-term policy imperatives materially conflict with medium-term ones.
The banking system will be a shadow of its former self. With regulation more expansive in form and reach, the sector will be de-risked, de-levered, and subject to greater burden sharing. The forces of consolidation and shrinkage will spread beyond banks, impacting a host of non-bank financial institutions as well as the investment management industry.
How does inflation behave in the new normal? For now, it is hard to project any imminent pickup in inflation given the severity of the collapse in global demand and the resulting large output gap. Private components of global demand will not recover quickly and fully. Yet, one should not fixate just on demand when transitioning from a cyclical to a secular mindset. Supply also matters.
In the next few years, the historical pace of growth in potential output will face many headwinds. Excessive regulation, higher taxation, and government intervention will be among the factors that will constrain the growth of potential (non-inflationary) output (Chart 3, prepared by Ramin Toloui, conceptualizes the process). With investment activity subdued for a while, the rate of depletion of the capital stock will rise. There is also the loss of endogenous credit factories that, especially in their overheated 2004–07 phases, fooled people into believing that the increase in leverage-based economic activities was sustainable.
The most animated discussion in our Forum related to another aspect that will govern inflation dynamics in the new normal: whether the massive amount of fiscal and monetary stimulus adopted by the U.S. authorities will erode confidence in the public goods that the country provides to the rest of the world – namely, the dollar as the world’s reserve currency, and deep and predictable financial markets to intermediate excess savings.
In its weakened state, the U.S. can ill afford a reduction in the “implicit rents” it collects for providing such public goods. Otherwise, inflation will take off much earlier than recent history would suggest. Even more consequential, over time the U.S. would retain less control over its economic and financial destiny, thereby slowly assuming the characteristics of what economists label as “small open economies.” This is a fundamentally unattractive possibility not only for the U.S. but also for most other countries. None of them (let alone regions and multilateral bodies) is able and willing to assume the responsibilities at the center of the global system.
In the new normal, bottom up issues will actively compete with top down themes. The power of the convergence magnet – that mystical Anglo-Saxon model of liberalization and de-regulation where a prosperous post-industrialization phase relies on an ever-booming financial system – has weakened. No other model is able to step in at this stage. Accordingly, the partial vacuum will translate into country differentiation relative to what has taken place in the recent past. |
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HenryTo
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| Posted: Sat May 16, 2009 3:53 pm Post subject: |
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Lead PM of PIMCO's high yield fund leaves for Hotchkis and Wiley. The replacement will be no other than Bill Gross:
http://news.morningstar.com/articlenet/article.aspx?id=292189
| Quote: | Bill Gross will take over portfolio management of at least four of Hudoff's funds until PIMCO can find a high-quality replacement. The firm tells us that they have opened up the search to both internal and external candidates. However, PIMCO says it is not in a hurry to find a replacement since Gross is reportedly excited about the opportunity to lead the fund.
Gross will lead a team of nine global high-yield portfolio managers, 30 credit research analysts, and 16 investment-grade portfolio managers. PIMCO says the strategy of the high-yield fund will not change and will continue to rely on PIMCO's bottom-up and top-down macroeconomic research.
We believe shareholders are still in good hands, as PIMCO has a deep research bench. However, this management change does raise eyebrows. Hudoff's was not a planned departure, and it's somewhat unusual that the firm didn't have a successor identified. Furthermore, this is the fourth departure of a well-known PIMCO manager in recent years who didn't appear to be suffering from obvious or major portfolio performance issues; the others were John Brynjolfsson, Sudi Mariappa, and Hudoff predecessor Ray Kennedy. That doesn't worry us with regard to the depth of firm expertise--we are familiar with many of PIMCO's lesser-known managers, and several are rock-star impressive--but it does raise the question of why such top-notch folks haven't wanted, or been able, to stick around longer. |
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HenryTo
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HenryTo
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Location: Los Angeles, California
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| Posted: Thu Mar 19, 2009 8:34 pm Post subject: |
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PIMCO's Scott Simon (Head of PIMCO’s Mortgage- and Asset-Backed Securities Portfolio) on the housing and mortgage markets:
http://www.pimco.com/LeftNav/PIMCO+Spotlight/2009/Spotlight+Simon+Housing+March+2009.htm
| Quote: | Q: Looking at the trajectory of home prices, would you say the worst is behind us, or are housing prices likely to continue falling?
Simon: Our view really has not changed very much since 2005, when we forecast that 2007 would not be a good year, 2008 and 2009 would be very bad, and that prices would eventually bottom late in 2010. We are about two-thirds of the way from peak to trough.
With the actions the government is taking, we are seeing probably the first glimmer of increased hope. Whether it is by making credit cheaper or more available or working on loan modifications, these programs will mean the bottom in housing prices is likely to be higher in price, and likely to happen sooner than it otherwise would have.
So, depending on what comes out of Washington in the next few months, it’s possible that housing could bottom out at the end of 2009. If they adopt the 4˝% target we discussed, or if they implement responsible loan modification programs, I think that this could happen. But housing is still going down, and even if it hits bottom by the end of 2009, it’s not going to recover anytime soon. Prices will stay flat for a while after they bottom out, but the key is to make housing prices stop dropping. |
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HenryTo
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| Posted: Sun Nov 09, 2008 6:01 pm Post subject: |
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PIMCO's credit desk (dated October 29th) on the forced deleveraging in the financial markets - as well as what they are buying right now:
http://link.brightcove.com/services/link/bcpid1185162163/bctid1896781319
Also says that the forced leveraging is about 2/3s done - note that this comment was made on October 29th. |
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HenryTo
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Location: Los Angeles, California
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| Posted: Thu Nov 06, 2008 8:41 am Post subject: |
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Latest commentary from PIMCO's Mohamed El-Erian. Interestingly, he is relatively optimistic in this article:
http://www.pimco.com/LeftNav/Viewpoints/2008/Viewpoints+November+2008+Pipes+Unclogged+El+Erian.htm
| Quote: | Markets are pricing in the morphing of the crisis, but not fully yet. Within the G4 (eurozone, Japan, U.K. and U.S.), they are now correctly signaling two convergence trends. First, that interest rate differentials will narrow further as policy rates converge, but not fully, to (the now even lower) Japanese levels; second, that banking sector policies will become even more encompassing globally, including in guaranteeing virtually any activity deemed systemically important.
Having said this, markets have yet to recognize the cumulative impact of the significant policy measures already announced. This excessive policy pessimism partly reflects the unavoidable lags that exist in the recognition-design-execution-effectiveness chain. It also reflects the hesitancy of market participants whose early optimism has been buffeted by repeated sharp market sell-offs.
These factors will evolve over the next few weeks. Look for an accelerated unclogging of the financial system's plumbing, including the normalization of the commercial paper segment. Look for a measured yet notable recovery in sectors that are embraced by government balance sheets, such as bonds issued by systemically important banks and senior mortgage securities. But do not look for a panacea. There will be no generalized, quick and sustained recovery in all risk assets. Too many have been severely damaged to bounce back any time soon. |
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HenryTo
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HenryTo
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Posts: 11742
Location: Los Angeles, California
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| Posted: Sun Jun 01, 2008 4:18 pm Post subject: |
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Barron's interview with Mohamed El-Erian, co-CEO and co-CIO of PIMCO. Discusses - among other things - the four trends that are currently playing out in the context of a "major transformation" in the global economy:
http://online.barrons.com/article/SB121218746872433999.html?mod=b_hps_9_0001_b_this_weeks_magazine_home_right&page=sp
| Quote: | One is a realignment in global growth. The world was a plane flying on a big engine called the U.S. consumer. That engine is getting exhausted. Many smaller, new engines are coming on: China, India, Brazil, Russia. The global economy is not going to crash, but shifting from one big engine to many small ones is a bumpy process.
Second -- and people weren't even talking about it when this book was being written last November -- is the return inflation. As these countries go from being just producers to being producers and consumers, there will be upward pressure on commodity prices. We are going from a world of disinflation to a world of inflationary pressure.
Third, structured finance has diminished the barriers to entry. This is a major innovation. The first round tends to be destructive -- people over consume and overproduce the innovation. Structured products massively reduced barriers to entry in the mortgage market, leading to the subprime crisis. Then there are losses. Now we have to clean up the process. But we've lowered the barriers to entry and we're not going back to old-style mortgages.
Fourth is the transfer of wealth. Debtor countries are now creditor countries. Managing success isn't an easy task. It's a bumpy journey. |
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