For the time being, I am going to have to stop the weekly linkfest. It takes several hours of work, so based on 80/20 rule not worth it. I might change my mind in the future, or if I get a lot of complaints, I might reconsider.
On Sundays I am going to post articles/video instead.
I have a huge announcement coming up this week, stay tuned.
Also make sure to follow me, as I will be posting more notes from Joel Greenblatt’s class, and the entire Seth Klarman 2010 Shareholder letter (still very relevant today) over the next two weeks.
Here is a good video from today (I have a bunch of good videos I will be posting Sunday).
On this week’s Consuelo Mack WealthTrack, part two of Consuelo’s exclusive double interview with two of the investment world’s biggest stars! Bill Gross and Mohamed El-Erian, Co-Chief Investment Officers of money management powerhouse PIMCO, sit down together to discuss outlook and strategy.
Below is the video and full transcript from last week:
CONSUELO MACK: This week on WealthTrack- when these two speak, the investment world listens. Two of the world’s most influential investors sit down together for a WealthTrack exclusive- PIMCO’s co-chief investment officers, Great Investor Bill Gross and global Thought Leader Mohamed El-Erian together next on Consuelo Mack WealthTrack.
Hello and welcome to this edition of WealthTrack. I’m Consuelo Mack. Every week on WealthTrack, we try to bring you the best minds in the business to make sense of an increasingly complex and fast changing world. This week we have two of them, who work closely as a team, but rarely if ever appear on television together. They are doing so exclusively on WealthTrack for the next two weeks. One is Bill Gross, the man widely known as the bond king for his stellar management of the world’s largest bond fund, the nearly $250 billion dollar PIMCO Total Return Fund, which has outpaced bond market indices and the vast majority of competitors over the past 5, 10, and 15 year periods. Much to Gross’ chagrin, the fund is seriously lagging the pack this year- more on that later.
The other is Mohamed El-Erian, former head of Harvard’s endowment, 15 year veteran of the International Monetary Fund, once top-ranked emerging markets bond manager, who is now CEO and shares the co-chief investment officer title with Gross at Pacific Investment Management Company, known simply as PIMCO, the firm Gross founded in 1971. Both Gross and El-Erian are legendary for the sheer scope of their activities, insights and influence. Both multitask as money managers, analysts, commentators and advisors to clients, businesses and governments. Each writes and speaks several times a week. Bill now tweets daily, and has over 40,000 followers.
In the last month alone, they have covered topics ranging from the European debt crisis to the value of a college education to the Occupy Wall Street movement. And Bill has written a now widely covered Mea Culpa to clients for his lagging Total Return Fund performance explaining that he didn’t anticipate the “global flight to quality triggered by the European debt crisis and the politically induced deterioration in this country’s growth outlook.” His biggest mistake was not having any U.S. Treasury bonds when the world decided it wanted nothing but. The very competitive Gross went on to say that “there is “no ‘quit’ in me or anyone else on the PIMCO premises. The early morning and even midnight hours have gone up, not down, to match the increasing complexity of the global financial markets.”
I started by asking them to update PIMCO’s now widely quoted and accepted 2009 prediction that the U.S. and the rest of the developed world had entered a “new normal” economic environment of slow growth and sub par investment returns. It turns out they believe recession is now a very real risk.
BILL GROSS: In the United States, perhaps, we’re still at a one to two percent growth rate and that’s for the third quarter. The fourth quarter is problematic going forward based upon a very weak consumer, based upon real wages that haven’t really kept pace certainly with profits and with other growth metrics, and the spending power of consumers being 65 to 70% of the total growth in the United States. And so consumer dependent, but consumer weak. So that means that in the United States we might be inching close to a zero to one percent level going forward. We might be what approaching stall speed and perhaps Mohamed can speak to that concept.
CONSUELO MACK: So Mohamed let me ask you, because speaking of risks, the European debt crisis is a risk that you’ve been writing about now and kind of more and more vehemently in recent months. So how big a risk is the Eurozone crisis to the global economy and markets?
MOHAMED EL-ERIAN: It’s a big risk. I mean, we have to remember the Eurozone is the biggest economic region in the world. It also has a lot of banks, and therefore, if it struggles there will be implications. And what’s ironic about the Eurozone crisis that it didn’t need to get this bad. Bill has a wonderful analogy. You know, you start with an infection in the toe and you don’t diagnose it properly, you don’t treat it properly. The next thing you know your leg is infected. You don’t do anything about that. Next thing you know other parts. And suddenly your vital organs are threatened. So that’s what has happened in Europe.
CONSUELO MACK: So are the vital organs threatened in Europe? I mean, we’re that close to a critical condition?
MOHAMED EL-ERIAN: So what is the market telling us? The market is telling us they’re worried about the banks in the core. They’re worried about French banks. What’s the market telling us? That they’re getting nervous about the credit rating of certain countries like France. Even Germany’s CDS, the credit default swaps, at one point were well above 100, they went up to 120. So the indications are from the market to the Europeans, please get your act together because this infection is spreading and if you’re not careful, it’s also going to affect the rest of the world.
CONSUELO MACK: Now, you’ve talked about that Europe needs a circuit breaker and you haven’t seen a circuit breaker yet. And I have to admit, you know, who would have thought that U.K. Prime Minister David Cameron says that the European leaders need to take a big bazooka approach to this problem. So what kind of a circuit breaker do we need? What’s missing?
MOHAMED EL-ERIAN: So it’s not only Prime Minister Cameron, I mean, even Trichet, the outgoing governor of the European Central Bank, went to the politicians said this is now a systemic crisis. You need two things. First you need a circuit breaker to slow things down, which means that you need firewalls and you need to protect the banking system and the really big countries, which are Spain and Italy.
CONSUELO MACK: So what is a circuit breaker? What kind of financial instrument is that?
MOHAMED EL-ERIAN: So in the case of the banks, you need three things. You need, first, the ECB to provide liquidity which they’re doing. Secondly, you need to put equity in and third, you need to improve the asset side.
CONSUELO MACK: So