Mohamed El-Erian,co-CE0 and co-Chief Investment Officer at PIMCO,said that Friday's employment report was a half-full/half-empty report.It points to long term unemployment going up.There are structural aspects to unemployment.The question is whether you believe levels matter.You really need big changes.Mr.El-Erian doesn't believe there is a playbook to this.What with sovereign debt risk and regulatory shock,you need to reach escape velocity.The question is what you get in the second half of the year.
There is an inventory spillover,Mr.El-Erian pointed out,asking whether it is sustainable.Do balance sheets matter or not?The tug of war between cyclical and structural is very interesting.A tremendous amount of temporary and temporal stimulus is in the system right now.Do you face a hand-off to private demand or structural headwinds which the market isn't comfortable with?
Unfortunately,the crisis has been a balance sheet issue.There are few occasions of a balance sheet shock on top of a cyclical story,as we have now.PIMCO builds portfolios with four different layers:secular;structural;cyclical;and tactical.At this point,there are certain corporate bonds that PIMCO likes,Mohamed El-Erian noted.He was formerly manager of the Harvard Endowment.
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