Mohamed El-Erian: Putting It All Together

Tyler Durden's picture


The world is awash in contradiction with stocks rising to new highs as interest rates reflect a slowing economy. It is an upside down world according to PIMCO's Mohamed El-Erian. As Lance Roberts annotates, the moustaced maestro explains individuals are both excited and anxious. They are excited by the rally in the markets as they see their portfolios increase in values but at the same timed overwhelmingly concerned about the economic future. It is a world with an enormous contrast between the markets and the real economy. That is the world we are navigating and it is incredibly unusual. This is why it is an unloved rally. His discussion at the recent Strategic Investment Conference is about a simple framework to reconcile these issues. The long term view matters greatly - but the short term matters also.


Via Lance Roberts of Street Talk Live blog,

In Part IV of the series of reports from the 10th annual Strategic Investment Conference, presented by Altegis Investments and John Mauldin, Mohamed El-Erian ties together the views of the previous presenters. You can read the previous presentations by clicking the links below.

Part I: Niall Ferguson – The Great Degeneration

Part II: Jeff Gundlach – Why Own Bonds At All

Part III: A. Gary Shilling – Six Realities In An Age Of Deleveraging

Mohamed El-Erian, Ph.D. is the CEO and Co-CIO for Pimco, the global investment company with over $2 Trillion in assets under management. Here are his views:

I want to try and build on what you have heard so far.   I want to focus, in particular, on two statements that have been made so far at this conference.

  1. The need to put the pieces together
  2. To make sure we give ourselves a chance to win.

So, how do we put the pieces together to give us the best chance to win? I will try and give you an answer.

If you knew nothing of the markets, and just showed up at this conference, you would be very confused. The world is awash in contradiction with stocks rising to new highs as interest rates reflect a slowing economy. It is an upside down world.

Individuals are both excited and anxious. They are excited by the rally in the markets as they see their portfolios increase in values but at the same timed overwhelmingly concerned about the economic future. It is a world with an enormous contrast between the markets and the real economy. That is the world we are navigating and it is incredibly unusual. This is why it is an unloved rally.

Therefore, I want to provide a simple framework to reconcile these issues. The long term view matters greatly - but the short term matters also.

First, acknowledge that we are here, in terms of current policy, for a good reason. Most countries are shifting from a growth model based on leverage and credit creation to trying to find a new growth model based on new realities. Emerging markets are shifting from exports to internal growth. Developed economies are shifting to a lower growth economic cycle due to ongoing deleveraging.

These shifts require assistance from the Central Banks. However, this assistance leads to disconnects.

"The question, however, is what the “hand off” from assisted support to organic growth will look like and when will it come?"

"The hand off is the 'destination.' The 'journey' is getting there. Investors must invest for both the journey AND the destination. Investing for only one part will lead to unhappiness during the journey or pain at the destination."

At Pimco this reality is what we call the “stable disequilibrium.”  The world will not reset in cyclical manner and a “new normal” has arrived.

The look of the “new normal” is that the West will be stuck in a low growth and high unemployment cycle for quite some time to come. Conversely, the emerging world will continue to bounce back and begin to close the gap between wealth and incomes.

There are three speeds to the “new normal.”

  • Slow: Europe and Japan that will live continue to live through lost decades.
  • Medium: Countries like the US are healing - but not fast enough to get obtain “escape velocity.”
  • Fast: Emerging countries with strong balance sheets and favorable business economies.

This is the reality of the world that we live in today.   If this three speed theory is correct then there are three questions that must be answered:

  1. Can it persist and for how long?
  2. Will it add up?
  3. What do you do about it?

Yes, it can persist but not forever.

The timing, which is tricky, differs on where you look. For example, in Europe, Cyprus tells you much about the entire European structure. The Troika is no longer operating in an efficient manner. The creditors are also tired of supporting the Eurozone as they see no end to the checks they are writing.  

Likewise, the debtors are tired from adjustment fatigue. The problem is that the majority of Eurozone countries not only lack growth but, much more importantly, they lack a growth model.

The financial markets don’t care because there is the ECB.   Whatever happens - the ECB, as Mario Draghi promised last June, is willing and able to support them. However, the ECB only supports the journey – not the destination. The Eurozone is nearing the end of its journey and they will soon be forced to make tough choices.   They will be forced to either opt for a stronger, and smaller, Eurozone which will begin to grow again, or, fragmentation which will end miserably.

In the U.S. - the Fed is fully engaged in artificial support to give the system time to heal. There is no question that the economy is healing. Corporations, banks, and housing are all healing. If this continues it will allow for a handoff from supported growth to real growth.   If the structural problems don’t improve then we will slip back into a slow growth economy.

Emerging markets will either continue surge or slip back to moderate growth.

So, the reality is that when you live in an interdependent world your competitors are your friends. In an independent world your competitors can bring you down. The world, today, is unlike what we have ever seen before. Unfortunately, global policy coordination is really non-existent.

Historically, when the core has been weak there has been someone to step in to support it. After WWII the U.S. stepped in to support Europe. Today, with the entire world weak – there is no one large enough to support the core.

When it comes to investing the majority of recommendations to investors is not based on fundamentals but rather stocks are cheaper than something else. This is potentially very dangerous.

What Should Investors Be Doing

Ride the central bank wave. The more intervention done by one Central Bank forces other countries to do more. The Fed forced Japan into its policy shift. Japan has now forced the ECB to move further.

The Central Banks have little choice other than to continue on their current trajectory. They cannot get to their objective unless they make you feel better by boosting confidence.

However, it is also important to understand that all waves eventually break.   The question is whether you crash or “walk off” the surf board. This wave will crash. When it does it will depend on how you are positioned that will determine whether you suffer or not.

Secondly, there are other waves out there.   There are too few people looking for other waves where central banks cannot reach. In these areas there is genuine growth potential. These include selected currencies, bonds and other types of assets.

Third, understand that past models are broken. The world today is far different that it has been historically and therefore new models must be built.

Fourth, you cannot disconnect the markets from the fundamentals forever.   There is a limit and when the reversion of markets to the fundamentals occur the devastation to capital will likely be severe.

Fifth, do not give up liquidity cheaply. In the world today it is very binary.   It will either end well, or very badly, with no middle ground. Optionality and liquidity is the key to surviving and profiting from a binary world.

Finally, realize that risk mitigation is going to have to evolve.   Cost effective tail hedging is going to be critically important. This is a choice that all investors must make: Do you leave some capital on the table as markets rise or suffer large capital losses later. The choice is critical.


Why is it that the Pimco’s of this world are not disciplining a system that is becoming more and more artificial? Why do we allow the manipulation?

In a classroom you can discipline a single a person. However, if the whole class misbehaves it is an entirely different issue.   Currently the whole class is misbehaving and that is a very different paradigm than what we have seen in the past which has led to unprecedented, unproven and untried interventions that are likely to have far reaching outcomes.

Investors that are overly invested in stocks will eventually pay a very high price for taking on excessive risk. We are approaching the end of the journey for this experiment and it will either result in a return to organic growth or economic disaster. The problem is that we really don't know which it will be. What we do know is that eventually, regardless of the outcome of these monetary experiments, the disconnect between the fundamentals and the markets will revert which will prove painful for unhedged investors.

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Sat, 05/04/2013 - 20:15 | 3530740 Atomizer
Atomizer's picture

Mohamed El-Erian: Putting It All Together| We’re about to contract bitchez



Sat, 05/04/2013 - 23:10 | 3531078 StychoKiller
StychoKiller's picture

[quote] In an independent world your competitors can bring you down. The world, today, is unlike what we have ever seen before. Unfortunately, global policy coordination is really non-existent. [/quote]

Sorry, but that is a positive situation in my book.

Sat, 05/04/2013 - 23:38 | 3531173 strannick
strannick's picture

I think he was trying not to say ''gold''

Sat, 05/04/2013 - 20:15 | 3530743 agent default
agent default's picture

Markets vs reality... Buy silver and gold and get out of the system while you still can.  And I don't want to read any articles here about the size of the fraud when "markets" eventually meet reality.  It is already too obvious.

Sat, 05/04/2013 - 20:15 | 3530744 AUD
AUD's picture

As if this bin-Laden could put a lump of shit on top of another lump of shit.

Sat, 05/04/2013 - 22:05 | 3530958 otto skorzeny
otto skorzeny's picture

"ride the central bank wave as we whistle past the graveyard"- bitchez. but don't worry-ba ba booey sez -you small investors will be left holding the bag.

Sat, 05/04/2013 - 20:20 | 3530751 Scro
Scro's picture

Dude needs a reality check.

Sat, 05/04/2013 - 20:21 | 3530754 Seasmoke
Seasmoke's picture

i am tired of trying to figure out the future......SO I Buy GOLD........and know its better to be way too early, than even one day late

Sat, 05/04/2013 - 21:02 | 3530813 TrustWho
TrustWho's picture

...make sure you know neighbors who have a mule, tools, land and know how to grow food. Be prepared, you neighbor may want to trade his food for eggs, meat and milk instead of your GOLD!

Sat, 05/04/2013 - 21:03 | 3530819 Seasmoke
Seasmoke's picture

that is what my Bourbon is for

Sun, 05/05/2013 - 09:41 | 3531814 nodhannum
nodhannum's picture

A large element of truth there with respect to trading food goods. That is how I grew up on as a kid. I still have the farm which is near excellent fishing to boot. I disagree on the comment about Au however. Gold has been and will continue to be a condensed form of wealth and tradable.

Sat, 05/04/2013 - 20:25 | 3530755 doggis
doggis's picture

what a whole lot of HORSE SH*T!!! Are you kidding me --- can you really read this and have a straight face? hell arian is talkin out his arse! let me go through it with you - this coming from such a BRILLIANT man - "there is NO question that the economy is healing' - ahhh as measured by the employment participation rate, or maybe it is the latest NFP calculated DROP in hours worked, or maybe its the record food stamp usage -- no! no! - it is in fact the real AVERAGE wage rate that continues to DROP!



In the U.S. - the Fed is fully engaged in artificial support to give the system time to heal. There is no question that the economy is healing. Corporations, banks, and housing are all healing. If this continues it will allow for a handoff from supported growth to real growth


Sat, 05/04/2013 - 20:37 | 3530770 Atomizer
Atomizer's picture

Let's tell everyone what's really on your mind. Nice rant, thought I would convert for your reading pleasure.....


Wot a huurl lot iv cuddy shit!!! are yee kiddin wor --- gan yee deed reed this an' hev a strite face? hell arian is talkin yeut eez arse! let wor gan throo it wi' yee - this comin from sich a brilliant blurk - "theor is nar na queshtun that the economy is healing' - ahhh as measured by the employment participation rate, or mebbies it is the latest nfp calculated drop in hoors worked, or mebbies its the record scran stamp usage -- nar na! nar na! - it is in fact the real average wage rate that continues tuh drop! the fed is engaged in interest rate apartheid. it is 0% loans iv funny brass tuh the likes iv pimp co blurk heor, an' it is 22% loans tuh the rest iv wor smelly sheeple bastards! really! hawa.....really! in the yee.s. - the fed is fully engaged in artificial support tuh give the system time tuh heal. thor's nar na queshtun that the economy is healin. corporations, banks, an' housin are aaal healin. if this continues it will allaa fo' a handoff from supported growth tuh real growth



Sat, 05/04/2013 - 22:28 | 3530991 MFLTucson
MFLTucson's picture

In the U.S. - the Fed is fully engaged in artificial support to give the system time to heal. There is no question that the economy is healing. Corporations, banks, and housing are all healing. If this continues it will allow for a handoff from supported growth to real growth.


The Fed is fully engaged in artificial support which is causing the corporations, banks, and housing to appear like they are healing BUT, it is artificial (so sorry Mohammad, there is defiantly a question about whether this economy is healing)!  Love when they talk in circles!

Mon, 05/06/2013 - 05:55 | 3533617 Notarocketscientist
Notarocketscientist's picture

That is code for "BUY GOLD"

Sat, 05/04/2013 - 20:31 | 3530767 Aurora Ex Machina
Aurora Ex Machina's picture

Syria just escalated somewhat.

Aljazeera is citing anonymous sources that it was an Israeli plane. Note: the source's youtube channel for reference although there's some earlier night footage of smaller scale explosions [this last one is dated 26th April].


Liveleak has a much closer video of the same explosion with more detail. It looks like the site was hit / on fire then either another missile hit it, or a storage dump went up.

Sat, 05/04/2013 - 20:31 | 3530768 Bugsquasher
Bugsquasher's picture

Yeah the grandson of a Nazi collaborating Pan-Islamist is always the first place I go for financial advice.  Sarc/off

Sat, 05/04/2013 - 20:41 | 3530778 q99x2
q99x2's picture

Look you have an insane asylum called wall street, a bunch of anarchists that are addicted to heroin various other drugs and hookers, and they are controlling Washington DC (the FEDS). The rest of the country is buying weapons to protect themselves from Wall Streets criminally insane because the Attorney General, Holder, granted the criminal banksters impunity from the law. The bankster anarchists are now preparing to destabilize the United States of America by attacking it via the DHS. Why doesn't the new normal include locking the criminally insane up? Can't bugsy cough up some bucks for that? Put your money where your mouth is M'fer.

Sat, 05/04/2013 - 20:56 | 3530795 Hobbleknee
Hobbleknee's picture

Clearly a terrorist.

Sat, 05/04/2013 - 20:59 | 3530796 LetThemEatRand
LetThemEatRand's picture

I love the new "escape velocity" meme.  I suppose the mega-rich bankers and investment advisors such as El-Erian fancy themselves pilots in some heroic Rocket ManTM adventure.  But let me be the first to say -- you guys are not heros and you don't have a magic space suit.  Yes, you're rich.  You made a lot of money investing other people's money, win, lose or draw.   Congratulations for figuring out that you could make so much money telling people who earned their money how to invest it.  You and your ilk are parasites and the problem is you.  Our economy was just fine before it became not about making things, but about investing the money of those who do and making more than them in the process, leading more and more people to stop making things and instead focusing them on being concerned solely with making money from their money.  You.  Are.  What's.  Wrong.  

Sat, 05/04/2013 - 23:15 | 3531096 StychoKiller
StychoKiller's picture

See how lucid you can be if you stop drinkin' Big Brother's Koolaid! :>D

Sun, 05/05/2013 - 05:53 | 3531603 resurger
resurger's picture

Soothing words to me ... Thank you

Sat, 05/04/2013 - 20:58 | 3530801 DavosSherman
DavosSherman's picture

They bought gold at $1,700 with no fucking mention of silver. While they are light years ahead of institutional money, these fucking assclowns are so late to the party they almost weren't any lampshades left.

Putting it all together.


Sat, 05/04/2013 - 20:58 | 3530802 ISEEIT
ISEEIT's picture

So we shrug right? Any truly private "capital' has got to be spooked right? Why in the fuck would you invest in a world like this? Criminal gangs under the guise of 'governments' mafioso style performing hits and taking no prisoners?

Oh the plans...

Let it burn.

Sat, 05/04/2013 - 21:03 | 3530818 Its Only Rock N Roll
Its Only Rock N Roll's picture

double talk with no substance....jibberish is what I would call that

Sat, 05/04/2013 - 21:52 | 3530930 paintman
paintman's picture

Alarian is obviously an intelligent man, but all must recognize that he believes in the NWO concept and feels that he is one of those who is capable of managing this order.  Beware!

Sat, 05/04/2013 - 23:22 | 3531111 StychoKiller
StychoKiller's picture

Hmm, guess that moustache conceals a large Koolaid stain...

Sat, 05/04/2013 - 22:28 | 3530997 HD
HD's picture

"There is no question that the economy is healing. Corporations, banks, and housing are all healing."

  It's this kind of thinking on the back of manipulated data, fantasy accounting and endless money printing that proves that the masters of the financial universe are either pathological liars or myopic morons.



Sun, 05/05/2013 - 00:13 | 3531268 MFLTucson
MFLTucson's picture

Or both!

Sun, 05/05/2013 - 00:47 | 3531337 gwar5
gwar5's picture

UR so right. These guy are so obligated they'll say anything. I only listen to them hoping for an accident to slip out and to forensically translate the smorgasborg of psychological slippage from the inner conflict caused by all the lies going on.


Example: If the 'world is upside down'  then you might ascertain his message is also upside down as well, and he really feels that nothing is 'healing' even though he says it.

I would love to analyze these guys, and the politicians, on one of those new voice stress analyzers. I'm sure there are people doing that. I would not doubt Obama uses a teleprompter because somebody told him it would help mask his lies. 

Sat, 05/04/2013 - 23:33 | 3531154 Bingfa
Bingfa's picture

The rich getting richer

That's all they got....It's over

Sun, 05/05/2013 - 00:13 | 3531266 gwar5
gwar5's picture

Nobody loves the rally because everybody knows it's a fucking Doomsday Rally.

Sun, 05/05/2013 - 00:42 | 3531329 Zigs
Zigs's picture

From today's Berkshire meeting:  "“If you’re not confused, you don’t understand things very well.” — Charlie Munger, talking about today’s economy."

Sun, 05/05/2013 - 01:38 | 3531411 TeddyBear
TeddyBear's picture





 >>it is incredibly unusual. This is why it is an unloved rally.<<

= Wall of worry

Charts are working fine:)

Out of margin now, Stops hitting all around. Sorry to see some of them go, But profit is as profit booked:)

SPY ~~~hammer~~~

top warning Friday!!!!!

I would short but just got a vix buy last week, That was a good call.

TMV  ETF had a rsi buy but got stopped out and missed run, A down spike and I will buy again. This could be a home run someday.

My other buys;

ZLCS - Just a chart buy I do not want to know what they do- hold nose and buy :)



Sun, 05/05/2013 - 03:57 | 3531533 ak_khanna
ak_khanna's picture

The weakness in the democratic process ensures the victory of the Wall Street over the Real Economy for the foreseeable future. Things are definitely going to get much much worse before they get better for the real economy i.e. for more than 90% of the population.

Sun, 05/05/2013 - 05:51 | 3531601 resurger
resurger's picture

Go fuck your self and PIMCO

Sun, 05/05/2013 - 07:24 | 3531649 Edward Fiatski
Edward Fiatski's picture

I think the "Three-speed world Economy" is a great engineered mechanism to bring about "equality" around the globe; the West is going through intentional wealth destruction and wealth transfer, courtesy of its own leaders!

The above will result in 3-4 dominoes: 1) EU consolidates - Eurobonds, banking, fiscal Union among all countries, loss of sovereignty by everyone, Germany included, against the wishes of the peasants; 2) Undermining of the Republic, the U.S. Constitution in favour of iron-clad Federalism, which will see to join Canada & Mexico into a North American Union; 3) A large war in East/South-East Asia to remove the population disequilibrium.

Babylon, bitchez. ;-)

Sun, 05/05/2013 - 09:28 | 3531797 ArmyofOne
ArmyofOne's picture

I love gooooold.



 Mohamed El-Erian

AKA Goldmember... "he's got the Midas touch but he touched it to much."

Sun, 05/05/2013 - 09:40 | 3531810 SeeNoEvil
SeeNoEvil's picture

Home ownership at 18 year low Workforce participation at 25+ year low Part time job Obomanation. Record highs in eltro-food stamps and numbers of people on disability moar an moar retired   Debacement of reserve currency of all major economies and we want to call central bankers gone wild world a recovery is absurd . We are one black swan away from global Wiemar worldalicous 

Sun, 05/05/2013 - 10:42 | 3531811 SocialismIsCancer
SocialismIsCancer's picture

These analysts are all extremely knowledgeable and brilliant in "traditional" economics, I have nothing but respect and praise for them. But they all assume that with ever increasing money creation that at some point, eventually, the economies will accelerate. This assumption is their fatal error.

The critical change that they do not take into consideration is that a tipping point was passed in terms of the insuffiently productive and parasitic growing proportion of the human population that is a throttling force on the ever smaller minority of the productive proportion of the human population, operating in a positive feedback loop as follows:

1. Politicians buy votes with entitlement & artificial employment programs to get and keep political power, paid for by debt and ever increasing throttling taxes on the productive

2. The more numerous and expansive the entitlement & artificial employment programs, the greater the influx of no and low contribution immigrants, all of whom get citizenship and vote for more entitlement programs, and the higher the rate of laziness, no and low striving and achievement, and lack of saving, because it is just easier and more appealing to live off freebies and be taken care of by the government's cradle to grave programs

3. Ever larger population of parasites demanding ever more diverse and larger entitlements results in return to #1 to repeat the positive feedback loop

The results are:

1. Ever increasing percentage of the population that lives off an ever smaller minority of the population

2. Ever inceasing deficits, debt, and taxes of every kind on every thing and activity

3. Ever decreasing incentives and rewards to take risks, make sacrifices, strive and struggle to learn, build and achieve because while the individual bears all the risks, the corrupt immoral politicians and parasites reap more and more of the rewards

4. The once vibrant culture based upon individual initiative, personal responsibility and entrepreneurial spirit degrades into one of entitlement to ever higher standard of living without earning it and parasitism

I am absolutely sure that the economy is NOT going to return to any historical rate of growth as long as the positive feedback loop of entitlements and taxes remains in operation, and that means that the central banks will have to create and inject money forever, in effect replacing the role that savings from earnings played historically, because growing majorities in societies don't want to earn and save any more, they just want to get, have, spend and enjoy without the striving, sacrificing, struggling and earning, and the corrupt immoral politicians are very eager to buy their votes with endlessly diverse and growing freebies.

Sun, 05/05/2013 - 10:23 | 3531889 Waterfallsparkles
Waterfallsparkles's picture

For some reason the worse things get for Main Street the more Wall Street pumps stocks.  It is like they relish making Millions while the average American suffers.

It is almost like the Street wants to rub it in the faces of Main Street that they have excess Money to invest.  While, Main Street has trouble meeting their monthly bills.

Sun, 05/05/2013 - 21:28 | 3533187 SocialismIsCancer
SocialismIsCancer's picture

You let your resentment and bitterness towards those who have more you do, blind you to the practical aspect of why the professional traders want to lure the "main street" worker drones into the equity markets: it is so that there will be a source of buyers and momentum to sustain their escape when they deicde to sell out, because most of them will be selling at about the same time, so they need a supply of out-of-sync suckers to hold up the prices as they flee.

Sun, 05/05/2013 - 10:46 | 3531933 miker
miker's picture

I hope he isn't overly well paid. His comments/thoughts weren't even congruous. On the one hand he says the economy is healing in the US and then on the other says it could all end poorly. Alot of disjointed thoughts in my opinion. Nothing actionable.

Mon, 05/06/2013 - 05:51 | 3533614 Notarocketscientist
Notarocketscientist's picture

He has to say that.... otherwise he gets the Peter Schiff treatment..... tomato face bartoromo will mock him....

Sun, 05/05/2013 - 13:39 | 3532238 AynRandFan
AynRandFan's picture

El-Erian is clever at making what everyone knows sound new.  I don't think I've ever gotten a real insight from him, though it is refreshing to hear someone connected to the MSM actually talk big picture.

Ride the central bank waves, keep some cash off the table, look to emerging markets for growth, and don't expect the Euro to survive intact.  Well, I think we all knew that stuff.

Sun, 05/05/2013 - 14:03 | 3532294 Decimus Lunius ...
Decimus Lunius Luvenalis's picture

I love El- Arian.  Not only does he provide groundbreaking investment insight, he reminds me to not only inhale but also to exhale, to chew before I swallow, and to imbibe plenty of liquids throughout the day.

Sun, 05/05/2013 - 14:07 | 3532307 Dr.Engineer
Dr.Engineer's picture

I actually have investments with his firm.  They have funds which have BOUGHT GOLD!  Don't be a retard and read between the lines. 

What he says makes sense but he isn't going to give you a recipe.  You need to take his ingredients and make your own recipe.

This is one economist who deserved his Ph.D. 

I think there must be some engineering blood in his lineage cause he makes too much sense.

Mon, 05/06/2013 - 05:50 | 3533612 Notarocketscientist
Notarocketscientist's picture

He obviously is giving token mention to 'return to organic growth'... but very clearly if you have followed his comments he is giving you insider info .... economic collapse is coming - he knows it - we know it

Mon, 05/06/2013 - 05:48 | 3533610 Notarocketscientist
Notarocketscientist's picture

I take ... Door Number 2 - Economic Disaster

Mon, 05/06/2013 - 05:54 | 3533616 Notarocketscientist
Notarocketscientist's picture

I think Al-Erian is also a Muslim Terrorist - both he and Obama... has anyone checked his passport?

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