Monday, December 22, 2008

Mohammed El Erian on Investing in 2009

PIMCO's Mohammed El Erian appeared on CNBC this morning and gave his views on investing in 2009.

CNBC labeled the interview Back to Basics for Investors in 2009, which is not a bad summary of the interview. The investing basics mentioned in the interview included asset allocation, risk management, and solid investment vehicles.

Underlying the investing advice was a view that the economic downturn will worsen next year. El Erian contrasted 2008 as a year of financial crisis, with 2009 as a year of economic crisis. He listed "unemployment, defaults, companies defaulting, etc." as examples of the economic crisis.

Investors can expect 2009 to be different from 2008. One of the differences will be that in 2008 investors could not count on the investment basics: asset allocation, risk management, and investment vehicles that are perceived to be good ones.

In addition to going back to the basics, El Erian advised investors to consider government initiatives. "We're going to see fiscal stimulus packages going into the trillions of dollars. We're going to see support for various sectors, and despite that the economy will be bumpy."

One would expect a PIMCO bond manager to talk his book, but El Erian mentioned asset classes that many other investment managers have also mentioned in recent weeks. Among his favored classes for 2009 are investment quality fixed income, mortgages, and the top emerging markets.

He recommended moving out of Treasuries, but was also cautious about that move. He said specifically that some attractive assets could turn out to be "traps". To capture the upside and avoid the downside risk, he advised looking for "assets that are not only dislocated but where there's a catalyst for normalization."

Although he advised a "back to basics" approach, El Erian also warned: ". . . for the average investor conditions have changed and therefore the game plan has got to change, which means don't go and chase what are very attractive valuations from a historical standpoint".

Here is a link to the CNBC video: Video: El-Erian Talks About the Economy for 2009