What Investors Should Look For

It's getting very confusing,said Mohamed El-Erian,CEO and co-CIO of PIMCO.What you're having at the Fed fundamentally is,difficult decision-making in uncertainty and changing leadership.1.Not a really good feel for the economy 2.Trying to get the market focused on the journey,but the market is focused on the destination.Put on top of that the change in leadership.*
It's really important to act on what you know for sure.1.You know they can't hike rates;the economy just isn't strong enough.2.You don't know about tapering,and we're stuck in a low level growth equilibrium of 2%,and high unemployment with low inflation.We don't see the demand for the high liqiudity.The transmission mechanism is blocked.*
Look for the safest fixed income,the front end of the curve,up to five years.On the equity side,companies that will continue to take cash out and distribute through dividends and buybacks.*
Our assumption is,Congress will not create yet another self-manufactured crisis,Mr.El-Erian added.He is a long time associate of PIMCO founder Bill Gross,"the Bond King,"and formerly managed the Harvard endowment.

Bill Gross:New Normal Seen Persisting in the New Year

Bill Gross,co-founder of Pacific Investment Management Company,or PIMCO,sees stubbornly high or even increased unemployment for 2013,resulting in weak fixed income and stock returns and a surge in gold prices.Mr.Gross issued his firm's "Fearless Forecast" for the new year recently.It shows basically that the economy will trundle along in the new normal as defined by PIMCO:high unemployment;slow growth;and orderly deleveraging by developed countries.
GDP growth will be 2% or less on account of globalisation,deleveraging and demographic headwinds.Stocks and bonds will return less than 5%.The market will also lack the tailwind of the Fed's quantitative easing.The future price tag of Fed policies will be in the form of inflation and devaluation of currencies,relative either to themselves or to the prices of commodities in less limitless supply,such as oil and gold.
Future growth must come from investment in education and infrastructure.It has to be less consumption-oriented.It takes a determination and a  primal-spirited momentum to put this economy back in the hands of the private sector.
Mr.Gross manages the company's iconicTotal Return Fund,which returned a strong 10.5% in 2012.The economy and global economy are limited,he pointed out.PIMCO is a two trillion dollar firm.We'll cross our fingers and we won't be totally confident,but we think we can do it again,the"Bond King"predicted.
PIMCO Total Return Fund Instl(PTTRX)

Backstopping With Gold and Cash

The European debt discussion has been going on since the beginning of last year,says Abhay Deshpande,a portfolio manager at First Eagle Investment Management.European authorities keep finding ways to prevent its stopping.In the end,practical people will come to the conclusion-probably after the summer-that the European Central Bank needs to get directly involved.
We have 20% cash in case there's another Lehman-type meltdown.That means 17% commercial paper;some Treasury bills;and the bonds of well-financed governments.It's unpleasant,but if we can't find anything,we tend to default to cash.
Gold bullion is our number one holding.It acts somewhat as a hedge against the declining purchasing power around the world.One of the lessons we learned from the financial crisis is that sometimes we get it wrong,Mr.Deshpande admitted.
First Eagle Investment Management,LLC serves corporations,foundations,endowments,major retirement funds and individuals.Its staff of 156 has 60 billion dollars under management worldwide.With a lineage dating back to nineteenth century Germany,it emphasizes risk management and long term,value-oriented investing.
Commercial paper is an unsecured money market instrument sold by large banks and other firms.It is often contained in bond and money market funds.

Bill Gross Raises Cash

Bill Gross,"the bond king,"has rebalanced the industry-leading bond fund,the PIMCO Total Return Fund.He raised cash to 7% of the fund in November from -7% in October.Mr.Gross also cut government securities to 51% from 63% in October,which was a five-year high.He sliced mortgage securities from 16% to 12%,the lowest on record.The Total Return Fund is up about 17% year over year,better than 55% of comparable funds.
Mr.Gross feels that the bonds will decline in value when the Federal Reserve,reacting to an improving U.S. economy,raises interest rates in 2010.He is co-CEO and co-Chief Investment Officer at PIMCO,along with Mohamed El-Erian.They have been adding exchange-traded funds to PIMCO's offerings recently.

Correction Question

Is the stock market correction over,or will another shoe drop? There are analysts on both sides of the issue.It has only been two weeks since the precipitous decline,however,so it does seem to be premature to be declaring victory.As Mark Arbeter of Standard and Poors noted yesterday,trading volume during the partial recovery has been light,casting doubt on its authenticity;nor have there been any shocks to put the market to the test.If a surprising piece of significant data is weathered,then we might breathe easier.Until then,many investors are holding back in bonds and cash.