Tags: Pimco | El-Erian | Victory | Unemployment

Pimco’s El-Erian: ‘Too Early to Claim Victory’ Over Unemployment

Tuesday, 07 Feb 2012 10:45 AM

January's unemployment figures were a welcome surprise but the United States cannot claim victory over joblessness as of yet as the economy is still battling major headwinds, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.

The Bureau of Labor Statistics reports the economy added a net 243,000 nonfarm payrolls in January, well above market expectations of around 150,000.

The numbers brought the overall unemployment rate down to 8.3 percent from 8.5 percent.
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"It certainly was a really good number, both the 243,000 jobs created and the unemployment rate at 8.3 percent. But if you look at the composition of unemployment — long-term unemployment, youth unemployment, it suggests there is more to do," El-Erian tells CNBC.

"It's too early to declare victory for three reasons: one, we have headwinds. Iran is a headwind — geopolitical risk. You also have Europe as a headwind, so it's too early to declare victory because there isn't enough momentum as of yet to overcome headwinds," El-Erian says.

"Secondly, we've gotten here because of central bank policies, because of liquidity policies. We need a handoff to more sustainable policies and thirdly there's still too many long-term investors that are on the sideline. They haven't re-engaged, so it's great that we've gotten this far but it's way too early to declare victory."

Central banks have flooded their economies with liquidity to spur growth and investment, which can only go so far, as sooner or later, governments have to do their part to spur growth and development through public policies, El-Erian says.

Such polices often require compromise among political parties and are often seen as more difficult to pull off than unilateral actions taken by monetary bodies like the Federal Reserve.

"It's incredible to me that we haven't moved on housing, we haven't moved on credit. We haven't moved on infrastructure, we haven't moved on the fiscal side. It is incredible they are on the side lines," El-Erian says.

So where should investors put their money amid such uncertainty?

"Whatever your equity weight is, you want to be underweight. You want to have selective commodities," El-Erian says.

"You want to have gold and oil because of the geopolitical risk in your portfolio and on the bond side concentrate your exposures seven years and within because that's what the fed can secure in terms of the yield curve."

Commodities are looking better and better these days, investors say.

Improving jobless figures in the U.S. coupled with sentiment that China and other parts of Asia are picking up have investors stocking up on raw materials needed to fuel that growth.

"Growth is back in vogue," says John Stephenson, who helps manage $2.7 billion of assets at First Asset Investment Management Inc. in Toronto, according to Bloomberg.

"It definitely helps commodities that we’re seeing strong economic numbers, especially the payrolls in the U.S. That's a very welcome sign."

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Tuesday, 07 Feb 2012 10:45 AM
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