What Is PIMCO's Agenda These Days?August 8, 2012 @ 9:33 AM EST
The real Masters of the Universe have spoken.
One emphatically says don’t trust stocks in the short and intermediate term.
The other says perhaps don’t trust stock (or bond) returns for decades to come.
The two co-CIO’s of Pacific Investment Management Company, better known as PIMCO, have been all over the airwaves recently, with some bold statements.
Last week, the founder and legendary bond trader Bill Gross gave a much-publicized interview where he said “stocks are a 100 year-old Ponzi scheme”. As part of the PIMCO theme of “the new normal”, he embellished this with the comment that historical long-term returns in equities of +6.6% above inflation are gone for the foreseeable future.
Gross also said ‘the cult of equities is dead”, but did not necessarily have kind words for bonds either, saying, “It is even more of a stretch to assume that long-term bonds – and the bond market – will replicate the performance of decades past.”
So, what is the answer for Gross? “Appropriately-priced stocks” and global diversity, presumably things PIMCO is well-equipped to provide, as it has been ramping up its equity management team and equity funds in recent years.
(Gross apparently has a thing for the phrase “Ponzi scheme” as he has used in the past to describe the Fed’s quantitative easing programs).
Pimco’s other co-head and CEO, Mohamed El-Erian also just gave a highly visible interview, in which he said, according to BusinessWeek, “investors who took advantage of the recent rally in risk markets should reduce their exposure in favor of safer assets amid domestic economic weakness and global political stresses”.
El-Erian’s direct statement:
“This is an unusually uncertain time. It’s not just Europe. Let’s not forget there is a fiscal cliff in the U.S. Let’s not forget geopolitics is heating up in Iran again.”
So the question is, what is motivating these two to be making such prominent public statements and appear all over the press, with a definite message leaning toward caution and risk management, with a pinch of doomsday thrown in?
Both reportedly are at their desks between 4:30-6:00 am every morning and annually earn in the area of $100-200 million per year. Presumably they have much to do to every day to earn those princely sums without courting the press incessantly, no? (PIMCO’s Total Return Fund has averaged a 9.5% return over the past five years).
We think the answer is pretty simple. Both Gross and El-Erian are master marketers, and their constant press presence serves to reinforce their prominence in the financial services spotlight and make some serious rain for the firm.
The company with the self-important brand message of “Your Global Investment Authority” is letting the world know we all need their breadth, diversity, resources and global reach in an environment which has changed radically, perhaps for a very long time. “U.S. and global economies will undergo substantial change if they mistakenly expect asset price appreciation to do the heavy lifting over the next few decades.”
David W. (aka The Underground Trader)
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