Tags: Pimco | El-Erian | Investors | Risk

Pimco’s El-Erian: Investors Must Avoid Risk as Global Woes Mount

Thursday, 23 February 2012 07:39 AM

Investors are viewing the recent Greek bailout with skepticism and rightfully so, says Mohamed El-Erian, CEO of Pimco, which runs the world's largest bond fund.

Investors would be wise to avoid risky asset classes at this time, because even though the $172 billion bailout fund for Greece will steer the country away from a messy March default, it won't solve the country's deep-seated economic problems.

"The market is being very rational in saying it's a step but it's not a big enough step yet," El-Erian says of the Greek debt deal, CNBC reports.

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"Fundamentally, Greece is going to have to find a way to restore growth and restore competitiveness. If it doesn't do that, private capital isn't going to come in and if private capital doesn't come in you don't get the oxygen that an economy needs."

Greece is still carrying massive debt loads currently at 160 percent of gross domestic product, and austerity measures attached to bailout money including public-sector layoffs and pension overhauls will slow growth in the near future.

The U.S. isn't immune to a European implosion either.

"We have less economic and policy flexibility — that's the bad news," El-Erian says.

"The good news is the central banks are doing all they can to limit the damages to the payments and settlements system."

The euro surged against the dollar when word broke that Greece won access to the bailout facility, although the rally didn't last long and many global equity markets shrugged off the news.

Investors should sell some stocks and divvy up the profits in gold, oil, and concentrate bonds, El-Erian adds.

Other experts agree that while the Greece deal does steer the economy away from immediate default, the rescue package is the second one for Athens, and uncertainty remains.

"The new bailout and restructuring deal is a welcome short-term reprieve," says John Praveen, chief investment strategist of Prudential International Investments Advisers, according to CNNMoney.

"However, it is unclear how successful it will be over the longer-term in addressing the debt problem.

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Thursday, 23 February 2012 07:39 AM
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