Tags: Pimco | El-Erian | Investors | Downturn

Pimco’s El-Erian: Global Economies Enter 'Synchronized Slowdown'

Monday, 04 June 2012 07:18 AM EDT

May's dismal jobs report, which showed the U.S. economy picked up a net 69,000 jobs, serves as fresh evidence the world's major economies are slowing in tandem, says Mohamed El-Erian, CEO of Pimco, manager of the world's largest bond fund.

The U.S., Europe and even once-hot emerging markets are cooling, while demand for safe-haven assets like U.S. and German government debt is soaring, meaning investors are parking their cash to ride out a pending downturn.

"The numbers also speak to a synchronized slowdown that is now taking hold of the global economy — a phenomenon that is being signaled by virtually every other data release out of Europe, the U.S. and emerging countries," El-Erian writes in a CNBC guest blog.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

Europe is going from bad to worse, with the fate of Greece's political landscape unknown ahead of June 17 elections.

Central banks, meanwhile, continue to keep interest rates low and monetary policy loose, while debts continue to worry in the U.S., where tax cuts will end at the end of this year at the same time as automatic spending cuts kick in, a combination that could siphon hundreds of billions of dollars out of the economy.

Plus no one country appears willing to take the lead and try and push the global economy through to better times, and investors are likely to continue fleeing risk.

"All this speaks to continued uncertainty and volatility — economic, financial, political and social. Since the world starts naturally long risk assets, we could well see more investors seeking less risky asset allocations, including cash in what they deem as 'safe jurisdictions,'" El-Erian writes.

"In the process, valuations — for bonds, commodities, currencies, and equities — could well diverge for a while from what many deem to be historically fair valuations."

"As Will Rogers is said to have observed decades ago, investors should be concerned with the return of their money and not just the return on their money."

Other experts agree that the weak U.S. jobs numbers reflect a growing sentiment that the U.S. economy is not as insulated from the European debt crisis as once thought, especially considering the debt burns hampering U.S. recovery.

"The U.S. is not an island. What happens abroad matters here," says Diane Swonk, chief economist at Mesirow Financial in Chicago, according to Reuters.

"It is difficult for anyone to commit to hire when growth remains subdued, and our fiscal problems both at home and abroad appear to be compounding."

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

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Monday, 04 June 2012 07:18 AM
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