Global Economy: Key Takeaways from PIMCO’s Secular Outlook: Rude Awakenings

In case you missed it—given the recent gyrations in Italy and financial markets—we published our Secular Outlook in May. Difficulties in Argentina and Italy, and President Trump’s imposition of tariffs on steel and aluminum imports from the EU, Canada and Mexico, among other disruptions, are some recent examples of rude awakenings for complacent financial markets. However, as we lay out in more detail in the outlook, these events may only be a small precursor of things to come over the secular horizon. Here are the key takeaways.

Following the three-day Secular Forum with distinguished external speakers and our Global Advisory Board, as well as our subsequent internal discussions, we concluded that we may be witnessing an important turning point: Ten years after the financial crisis, the global economy and financial markets look set to enter a new era of potentially radical change that will make the future look very different from the past.

The post-crisis environment has been characterized by financial repression through regulation; dominant central banks; mostly passive or restrictive fiscal policies; largely uninhibited trade and capital flows; subdued growth and inflation; and low volatility in the macro economy and markets. To be fair, the past decade had its fair share of rude awakenings, but whenever they came along, central banks were quick to step in and prop up markets and economies.

We expect a very different macro landscape to emerge over the next five years—for better or worse. Already, there are important shifts underway: The monetary-fiscal policy mix has been changing, with central banks retreating and fiscal policy becoming more expansionary; the regulatory discussion is moving from the financial to the tech sector; and economic nationalism and protectionism are on the rise. However, bigger disruptions may lie ahead. Here are five potential sources of major rude awakenings for investors over the secular horizon:

Read the full report at: Key Takeaways from PIMCO’s Secular Outlook: Rude Awakenings

The Financial Industry: PIMCO chief El-Erian once again trying to influence market behavior with negative statements about Portugal

Bond fund giant Pacific Investment Management Company's (Pimco) chief executive El-Erian said he expected Portugal to be the next euro zone country to falter, according to an interview in German weekly Der Spiegel.

Mr El-Erian also said he expected Portugal's first bail-out package will be insufficient, prompting it to ask the EU and IMF for more money.

But should we believe the Pimco predictions through its mouth-piece El-Erian? Many of their past forecasts have certainly not always been on target.

As one analyst recently wrote about Pimco: "if you have any money invested there, I recommend pulling out, fast".

The fact is Pimco seems to have very little understanding of basic economics and continue to call for policies that are ruinous to the worlds fiscal and monetary health. All they basically represent are run of the mill neo-Classical/neo-Keynesian economists who happen to be very good traders and who often just have been lucky. As Nassim Nicholas Taleb also pointed out in his writings, statistically institutions like Pimco can and will exist at the upper end of the investment advisory spectrum, and you can't tell if they are lucky or smart.

The problem is that when huge trading houses start making statements about a country or a continents economic welfare, they can not only create huge fluctuations in the market place but also influence stock markets in such a way that they mainly benefit their own portfolio of stocks and bonds.

So far no one seems to have classified this posturing as an "unlawful manipulation of the market place by financial or economic thought leaders, through the use of public statements for the purpose of personal/corporate gain and enrichment". In a way it could fall into the same category as insider trading.

Maybe its time for Governments to look into this?

Worlds Largest Bond Fund and Euro-Sceptic Pimco warns Greece will default

The Anglo Saxon financial Euro-sceptic band of alarmist voices are getting louder and louder. They reported that Pimco, the world's biggest bond fund, shrugged off last night's vote of confidence in the Greek government, warning that it expects Greece and other European economies to default on their debts to resolve their problems.

How serious can one take this statement from Pimco? Business Insider noted recently : "Bill Gross (aka the bond king) is starting to get a little desperate.  Several months ago we asked, Did PIMCO call a bottom in Treasuries? Since then USTs have gone up — and yields have fallen substantially.

This made the bond king look bad — especially when it came out that PIMCO had a net short position (later clarified to be via swaps). Either way, though, Gross has been pounding the table for how lousy Treasuries are. As USTs went up, seemingly mocking the king, he pounded the table even harder. This week, he really started stretching it."

Pimco and its duo Bill Gross and Mohamed El-Erian who have been pushing their, what they call “new normal” nonsense now for the past 3 years and should be taken with a grain of salt.

EU-Digest