Tags: Pimco | Lackluster | Economy | recovery

El-Erian: Pimco Planning on ‘Lackluster’ Economy

Tuesday, 01 May 2012 08:18 AM

Pimco CEO Mohamed El-Erian says his company is planning on a weak economy, and expects Friday’s jobs numbers to disappoint.

"Our strategy is based on a lackluster recovery," El-Erian told CNBC. "The last thing we need is a repeat of 2008, 2009, 2010 where the year starts strong" and then declines."

El-Erian says he believes the Federal Reserve "is going to have to do more, not because it wants to but because it has to" stimulate the U.S. economy.” That stimulus will come either as more Treasury purchases or some variant of its Operation Twist, says El-Erian, CEO of Pimco, manager of the world's largest bond fund.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

He also expects recession in Europe, including in Germany. "Germany will be the bright spot but even Germany will face headwinds," says El-Erian, who cautions investors to be extremely cautious about investing in sovereign debt. "It's better not to expose yourself because there's a chance of getting another haircut," he says.

Indeed, Pimco is advising U.S. clients to invest based on fundamentals by putting money in companies with a lot of cash and strong balance sheets.

"The Fed should be the cherry atop the sundae and not the sundae itself," El-Erian says.

Other economic experts have also recently warned of trouble ahead for the U.S. economy.

The recent disappointing March jobs report is just the beginning of a decline in U.S. consumer spending that will tip the country back into recession, clobbering stocks and reviving the bond market, says investor A. Gary Shilling.

He sees not a short-term correction but a huge 43 percent decline for the S&P 500, and he predicts that 30-year bond yields will fall to 2.5 percent, while the 10-year Treasury could hit 1.5 percent.

“You’ve got the foreign earnings that don't look good because of recession unfolding in Europe, a stronger dollar, so they are translation losses. A hard landing in China. In the U.S., we could see a moderate recession led by consumer retrenchment,” Shilling told Bloomberg Television in a recent interview.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

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