Mohamed El-Erian's money 'mostly concentrated in cash'

To those unfamiliar with Mohamed El-Erian, he is the former CEO and co-Chief Investment Officer at PIMCO.
PIMCO is one of the largest bond investors in the world, with $1.68 trillion in assets under management.
He left following a major bust-up with the co-founder, Bill Gross.
In 2013, while still with the company, his bonus was $230 million.

Presently he chairs President Obama’s Global Development Council, and serves on a number of non-profit boards.
He is also writing a book with the working title: “The Only Game in Town: The Rise and Possible Fall of Modern Central Banking and What it Means For You”.

To reinforce mr_a’s comment’s about Mo’ El E, for those unfamiliar, he has mega cred in the US, is a frequent guest on the best financial commentary shows.

Contradicts what he’s saying here.

Are you sure ?
Sounds very similar.
He’s keeping away from the main market, as that’s where the fed have pushed asset prices too high.
His money is in cash and high-risk, il-liquid hedge funds - opposite ends of the spectrum.

Nobody has any predictive credibility in the current economic climate since the conditions are unprecedented.

That said, nobody is expecting big returns so it’s basically a choice between <5% yield with possibility of losing a chunk in a mass panic, or losing small amounts of money very predictably by holding cash.

I think inflation is quite likely in the medium term, on the rather dunderheaded basis that nobody thinks it will happen.

It’d be interesting to see what El-Erian would do if inflation was running at >5% and asset prices were still elevated.

Interesting indeed.

but wouldn’t interest rates go up accordingly giving him some return on his cash?

Hemmm … stag-deflation ?

Ok stagflation.
I presume the ECB would not allow stagflation, would they prioritise controlling inflation with higher interest rates over stimulating economic growth?

What currency is he keeping his cash in? And what’s the difference between keeping your money in ‘cash’ (eg, say dollars), or in US Treasuries? You’re still betting on that currency keeping its value, relative to the price of goods, and to other currencies. The cash also has to be kept in a bank, which itself might go bust.

Anyway, he’s dismissing the role being played by CBs, whereas the Fed probably saved the world from a depression by quantitative easing and saving banks/finance houses after Lehmans.

I’m getting an excellent, risk-free, inflation beating rate of investment of 3.65% by overpaying my mortgage. Suck it up Mr El-Erian

Cash as there’s a risk the fed pricks the bubble (which is probably kept with a primary dealer)
High risk for the yield as it’s very possible the fed keeps back stopping the risk.

Similar to my strategy :slight_smile:

This may give my friend conork convulsions, but many banks going bust every year in the US does not give depositors and investors even the slightest concern.

Reason? The FDIC, Federal Deposit Insurance Corporation. Funded by a levy on the 7,000 banks they supervise. Since it was formed in 1934, not one investor has ever lost a single penny in a US bank failure. All deposits in every bank are automatically insured up to a value of $250,000. An investor with $10M or $100M or $1B in cash to deposit can easily set up a virtually unlimited number of $250K accounts in one or more banks, and head to the beach. … orporation

I’m tellin ya me boyo, you couldn’t be up to dem Yankees, they’d eat your lunch while you were tying your laces, and then blame your mother for stealing it.

Opinions please

Cash in what currency, or spread over currencies? Or gold as a similar hedge?

The above approach looks to get returns by averaging low return / low risk with high return / high risk.
It is easy to get your head around the return part, but when it comes to the risk:

  • can we assume that the capital is largely protected on the low return segment, and
  • how much can the high risk lose, if/when the bubble pops?

The alternative approach has a wider spread of returns and risk, not just the extremes.
Is the extreme averaging really focused on keeping the risk low for most of your assets, and taking a punt with the rest?

There is also the analysis that QE has not spread the money around - it is mostly going to financial institutions and investment markets,
not “main street”, causing bubbles as it goes.
How to switch off QE without causing crashes with huge impact on main street, is anyone’s guess.

I was kinda half hoping that someone would make the connection between the goals of the FDIC outlined above and what I believe were the similar goals of much criticized Irish bank guarantee, which I’m really not familiar with, but believe had very similar goals.

Albeit the Irish guarantee was cobbled together in an emergency and maybe very poorly implemented operated and misunderstood by all parties, but to help keep this thread alive an go a little off topic, I thought I would ask the question:

Does anyone believe that Ireland generally could improve it’s economy and competitive advantage vis a vis other European countries by implementing a new guarantee modeled after the undoubtedly successful FDIC model?

I do, and it’s one of the reasons I have believed for over thirty years that the sooner the EU moves to a US of Europe model so much the better for everybody. Maybe not 100% like the US, but substantially like it with some local options to suit different EU needs.

To hell with Margaret Thacher and long live Orwell’s1984. Well maybe not quite…

  • brush myself of after my convulsion, pop a few pills - all is well again.

? No - FDIC - being federal, meaning, when a bank fails, the public tax payers as a whole cop it to payback the depositors. Yuo should have said, since 1934, not a single penny of depositor money has been lost directly, but the cost of the FDIC to the public has been X$. To put it into context - not a single home owner has lost their house in Ireland due to non payment, but someones paying for it - the unlucky SVR holders.

Secondly, it causes the misallocation of money. I believe some of the 07-08 sub-prime mortgage lenders (previously bailed out) in the US are at it again, mainly because they can access funds from the public. If the public were at risk of loosing their deposits, they would pull them from the idiotic banks and the bank would be done with.
Thirdly, how much depositor money was lost during the 1929 era? A quick google search says a total of 4% of total deposits were lost, 20% in some of the actual banks that failed.

In order for the FDIC to operate, it must charge US banks more than what it costs to bail out depositors, + operating costs.
The banks will pass these costs to the public.
Wouldn’t it be more cost effective to the public in the long term just to let them fail? It would also implement prudence, something quite lacking in the industry & amongst the public.

Nope it wouldn’t. You’d have panic every time a single bank failed and incredibly steep recessions, er, as happened in the US… That is incredibly inefficient.

You might as well say that any insurance shouldn’t be allowed because it is a cost on everyone who takes out insurance (and who doesn’t), which, while it might suit you bunker dwellers ( :wink: ), doesn’t suit the rest of us. There are more of us, so we get to decide…

Not really, what I’m saying is depositors are generally protected as they are last in line to take a cut, there’s no need for the FDIC.
You seems to think the current monetary system is somewhat sounder than the “olden” days, you are somewhat deluded.

Bunker dweller, lol. You may disagree, but there was once a time when people were against repo’s. The tide turns slowly.

No, it’s only the FDIC that protects them. Remember the whole pari-passu thing? It hasn’t gone away. It is insurance (the FDIC or equivalent) that makes up the difference in loss.

Erm, yes it is in most places. Aside from Cyprus, which depositors lost money? Where was there a requirement for a run? Aside from Northern Rock, where was there an actual run on a European bank? You need to look again at what happened in ‘olden days’ when there was a financial panic and what the outcomes were.

There was never a time I was against repos bunker dweller… :slight_smile:

It protects them from a very small loss though. It’s pointless and causes misallocation.
If you had 200k and the EU FDIC was created, would you deposit it in a reckless bank? The likely hood is, you would. This reckless bank then speculates with the deposits… You can see where this is going.

The outcomes were banks closed, depositors occasionally lost a very small % of their money. The ordinary Joe is loosing money these days due to reckless banks. It happens in one form or another. The latest in Ireland being housing.

Ah, good to see you are somewhat of a capitalist :mrgreen: , but you referred to “the rest of us”