When PIMCO and I agree on stocks, ...

by Wayne Ferbert on May 1st, 2013

First, let me clearly state that I think PIMCO is an excellent fixed income money manager and anyone that has invested in their flagship funds for the long-term have been very happy clients.
In fact, I am a regular reader of the monthly Bill Gross Investment Outlook. We have many times highlighted it here on this site. You can find a link to it here. I recommend you make it part of your regular reading.
However, when PIMCO takes a strong view on stocks, I tend to discount it because they are naturally fixed income salesmen first and foremost. These two asset classes compete for investment allocation every day. 

But right now, PIMCO and I agree whole-heartedly on the stock market situation.
But Mohamed El-Arian, the CEO and co-Investment chief at PIMCO, made his most articulate case for explaining the market highs that I have read in quite a while. It sounds A LOT like the case we have been making on this site for a while.
His case is as follows:
  1. The US Fed and other world-wide Central Banks are pushing so much money in to the system that it has to go somewhere – and its mostly going in to stocks.
  2. The Bank of Japan, in particular, has taken recent steps that are driving the current rally higher as part of fighting deflation in Japan.
  3. But weak economic fundamentals, a sluggish US economy, weak earnings, and a “horrible” European economy do not justify current valuations.
  4. It is making this the most “unloved market rally” anyone can remember in a long time.
  5. The result: the pullbacks will be sharp because people will be anxious to lock in profits wherever possible. 
El-Arian recommends that investors stay nimble and ready to move money out of winners and in to areas that other are not readily investing in. I like the idea of being  a contrarian in the face of selling pressure. It is just not always easy to know when to be ‘nimble’ which means when to take your profits.
In general, if your asset looks over-valued when compared to historical norms, don’t ever be afraid to sell your winners and take profits!
On Thursday, let’s look at some ways to take winners and roll back in to cheaper assets!

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