The CEO of PIMCO says global market conditions have changed, but his proposed tactics to deal with them feel like the same old thing.
CHICAGO — Mohamed El-Erian’s message at the recent Morningstar Investor Conference here could be boiled down to one simple, dangerous statement: “This time it’s different.”
But if the global market conditions are as different as the co-chief executive and chief investment strategist at bond-fund giant PIMCO contends, then the real concern for investors is why the proposed tactics to deal with “this time” feel so much like the same old thing.
In a wide-ranging talk that covered everything from consumer finances to monetary policy, El-Erian said the market’s current problems are not the proverbial “random events,” but rather a sequence of events — including the return of significant inflation and the realignment of global economic power — that lead the market to a new reality.
“The unthinkable has become thinkable,” said El-Erian, author of “When Markets Collide.”
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“The market is talking to us. … This is not noise, these are signals, and understanding these signals is the difference between superior performance and the opposite.”
El-Erian’s message to consumers:
• “Don’t treat this as a one-time thing.” Issues such as inflation and the growing role of emerging markets need to be accounted for; they’re not blowing over.
• “Don’t think we’ll go back to business as usual.” The global economy is forever changed; El-Erian made a case to show how the market currently sees investments in Citigroup (C) and Goldman Sachs (GS) as being riskier than putting money into Brazil and Mexico. Changes in global perspectives are accelerating.
• “Don’t forget that crises involve opportunities.” El-Erian was not suggesting that investors wouldn’t make money in the new world order, in fact quite the contrary. But as the current issues unwind and come to the fore, he suggested that investors don’t lose sight of the long-term possibilities that exist in today’s short-term market problems.
“I hate the notion of saying ‘This time it’s different,’ but there simply is too much research showing that this time it really is different,” he said. “You don’t want to say it very often — because it loses meaning — but there’s no denying it right now.”
That said, El-Erian’s advice on how to handle the emerging situation was a bit lacking. He did say, however, that investors will want to make sure their portfolios represent stocks, bonds, cash and commodities, the latter being an area that has heretofore attracted more speculators than ordinary investors; it also was clear that international and emerging markets no longer should supplement the core of a portfolio, but rather should be a central part.
But if his basic plan of attack can be summed up in “Diversify, factor in inflation and emerging markets, adjust your return expectations downward for the next few years,” and so on, then his advice is roughly the same-old stuff. That’s not bad, it’s just not different.
Chuck Jaffe is senior columnist at MarketWatch. He can be reached at firstname.lastname@example.org or Box 70, Cohasset, MA 02025-0070.