Tuesday, September 29, 2009

Pimco's CEO on the Return of the old ways of thinking

Mohamed El-Erian, chief executive and co-chief investment officer of Pimco, in FT (registration required):
"Today’s lack of appropriate anchoring frameworks appears to be exacerbating short-termism. The issue goes well beyond the still-limited appreciation of the multi-year realignment of the global economy, which is gaining momentum. It also relates to tendencies well-documented by behavioural economists – such as framing the problem wrongly and refusing to question past approaches.

Given all this, we would be all well advised to follow the admonition of Mervyn King. Last month, the governor of the Bank of England stated bluntly: “It’s the level, stupid – it’s not the growth rates, it’s the levels that matter here.” Investors have not yet accepted his insight that the absolute levels of income, debt, wealth and unemployment, not just the rates of change, are what matters today. They need to, and soon."

Wikipedia: The Pacific Investment Management Company, LLC (PIMCO), is an investment company and runs the Total Return fund, the world’s largest bond fund. Founded in 1971 in Newport Beach, California, with just US$12 million in assets under management at the time, it is now owned by Allianz, a global insurance company based in Munich, Germany.

Mohamed A. El-Erian is PIMCO's chief executive officer and co-chief investment officer along with co-founder William “Bill” Gross. Gross manages PIMCO's Total Return Fund, which has over $150 billion under management. As of March 31, 2009, PIMCO in total had over US$756 billion in assets under management and more than 1,200 employees.

On May 16, 2007, former Federal Reserve Chairman Alan Greenspan was hired as a special consultant by PIMCO and he will participate in PIMCO’s quarterly economic forums and speak privately with the bond manager about Fed interest rate policy.

El-Erian rose through the ranks of the International Monetary Fund to become a deputy director. He left in 1997 and worked as a managing director at Salomon Smith Barney until joining PIMCO, a unit of Munich-based insurer Allianz SE. El-Erian’s name was put forward in 2004 to be the IMF’s managing director. In October 2008, El-Erian won the Financial Times Goldman Sachs Business Book of the Year for When Markets Collide.

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