We have to admit, we’re stunned by the extent to which PIMCO folks are talking down the prospects of Europe pulling through its current crisis.
It was reported by FT that the gigantic bond fund had dumped its Greek and Portuguese debt, then in the same article, portfolio manager Ramin Toloui is quoted as saying that ECB bond market intervention could be “backfiring”.
Then yesterday, the top dog Mohammad El-Erian wrote another guest post for FT Alphaville about the shock & awe already waring off, and he calls on Europe to cut it out with the easy solutions:
Yes, it is not easy to change track, especially after last weekend’s protracted negotiations and compromises in Brussels and Frankfurt; and, yes, the risks of immediate disruptions are material. Yet it is the right thing to do for the longer-term health of Europe and the global economy.
Let us hope that courage and vision , rather than short-term expediency, prevail.
So after having dumped Greek debt, the head of the world’s most powerful and fearsome bond fund is calling on Greece to do some combination of default and restructure, and not to wait, even though this contains material risk of immediate disruption.
This is all the more striking when you compare the firm’s tone now, in Europe, to its tone during our crisis.
Let’s revisit Bill Gross’s famous investment outlook from March 2009, written at the depth of the market crisis.
He specifically endorses radical government measures, and he says the “nationalize the banks” crowd (including a shout-out to Roubini by name), hadn’t thought things through.
And finally, he gives his famous investment recommendation. This will always be a classic paragraph (note the whole thing is written in the form of imaginary testimony on Capitol Hill:
Question: Enough already about this still confusing crisis – how should I invest my own money?
Answer: I’d give you an invitation to our PIMCO client conference next month in Newport Beach if you weren’t so busy here in Washington. Its theme is titled “Evolution or Revolution – The Future of Investing.” No golf or vintage wines though – just cheeseburgers and interesting conversation. But come on out if you care. I’m sure we’ll stress our current theme of “shake hands with Uncle Sam” – buying agency mortgages, and other developing areas of government policy support in the credit markets. But we’ll talk about the future of stocks too, leveraging and deleveraging, globalization and deglobalization, and why safe secure income may be the most desirable investment in this evolving economic and financial crisis. Tell you what, Madame Congresswoman, if you can’t make it I’ll write it up in next month’s Investment Outlook.
Shake hands with Uncle Sam, of course, proved to be a fantastic bet.
Of course… perhaps that’s Europe’s problem. There is no Uncle Sam to shake hands with in Europe. There’s Aunt Merkel, and Uncle Jean-Claude, and Uncle Barroso, and about 10 other possible uncles.
If only Europe had someone specific to shake hands with, it might be able to solve its problems more easily.