PIMCO CEO gives important investment insight

Mohamed El-Erian, chief executive of PIMCO writes in the Daily Telegraph today:

“Going forward, investors should keep a careful watch on four realities that are consequential for the configuration of risk-adjusted returns in various markets.

“First, global economic activity has fallen off a cliff since September, and will continue to do so in the next few months regardless of what governments do. Second, many investors have experienced large portfolio losses that will erode their risk appetite for some time.

“Third, notwithstanding the headline-grabbing stories of 2008, we are just at the beginning of a messy multi-year phase of institutional change in the financial markets that will ripple through many other sectors and companies.

“Fourth, driven by a genuine desire to compensate for cascading market failures, governments will intensify their involvement in markets through “unorthodox measures” that have both intended and unintended consequences.”

My comment:

His conclusion is that you should only invest in companies that stand to benefit from government intervention in markets. That is quite a brilliant observation.

You could chose UK banks that will not be nationalized: HSBC and Standard Chartered look like the only candidates now – but I would be wary of jumping in before the stock market bottoms.

Then again gold would surely be a likely beneficiary of government money printing, and likewise gold stocks, again once stock markets have bottomed. You could also looked at bombed-out commodities which might pick up thanks to government spending, including oil.

Otherwise this leaves investors sat on cash – which will buy more as prices are going down now. But government intervention and the printing of money will undermine cash as an asset in the long run.
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