âInvestors can still lose a lot of money in the stock market, but US government bonds arenât the solution either for those seeking safe havens, Pimcoâs co-CEO and co-chief investment officer Mohammed El-Erian told CNBC. âCertain bonds arenât worth owning, like government bonds for instance,â El-Erian said, adding that gaping deficits will force governments issue more debt.
âI am very underweight equities,â he said, adding that he has cut his exposure to stocks to 30% compared with around 60% in normal market conditions. Pimco is the worldâs biggest bond fund.
ââFundamentally we are in a volatile journey to what we call the new normal, the new destination. The world is changing,â El-Erian said.
âPeople have to adjust to the fact that wealth has been destroyed, and the fact that there are more than 5 million unemployed in the US shows how serious the situation is, he added.
ââThe American consumer will return but will be a saner consumer ⌠worried about their savings, worried about their retirement. That is a good adjustment. The problem is that it doesnât happen overnight,â El-Erian said.
âAsked whether he believed the stock market can re-test the March lows, he said: âThe intellectually honest answer is we donât know. I have a fear right now that people are sucked into the equities market ⌠go in as long as you can afford to lose that money,â he added.
âTwo out of four conditions need to be met for an economic recovery to begin, according to El-Erian: house prices need to stabilize, banks must start lending again, the consumer must start spending again and the rest of the world must pick up.
âFor the moment, only the fourth condition is partly fulfilled, with timid signs of recovery in China emerging, he said.
âAsked about attractive areas of investment, El-Erian listed mortgages, municipal bonds and corporate bonds, especially instead of stocks.
Source: CNBC, April 7, 2009.
Hat tip: Investment Postcards
