PIMCO CEO Mohamed El-Erian on the Impact of the January Jobs Report

SUSIE GHARIB: Today’s jobs report is welcome news, but our guest tonight
says the U.S. still has an unemployment crisis. He’s Mohamed el-Erian, CEO
of Pimco, the world’s largest bond fund. Hi Mohamed. Thanks for joining
us tonight.

MOHAMED EL-ERIAN, CEO, PIMCO: Thank you, Susie.

GHARIB: So everyone was really surprised by this amazing jobs
report, but it sounds like you’re saying we still need to look behind the
good news of that headline, right?

EL-ERIAN: Yes, first and foremost we should welcome these numbers.
They’re strong numbers. It’s wonderful that we created 243,000 jobs. It’s
wonderful that the unemployment rate has gone down to 8.3 percent, but
there’s also compositional issues that suggest that for us to maintain this
pace of improvement, we need more things to happen and that has to do with
the long-term unemployed. We still have 43 percent of the unemployed are
now long-term unemployed, 5.5 million. That’s a lot of people and also
youth unemployment. So a battle has been won, but the war against the
unemployment crisis continues.

GHARIB: And we know that there are still a lot of concerns about the
economy as we heard in Darren’s report. This week, for example, we had a
lot of encouraging reports on the economy, whether you’re talking about
factories being busier or auto sales being up. Is it fair to say that the
worse is over for the U.S. economy?

EL-ERIAN: What I think is unambiguous Susie is we’re having a
cyclical bounce and we’re having it for good reason. A tremendous amount of
liquidity has been put into the system by the Federal Reserve, by other
central banks. The savings rate as we heard in the package has come down
from over 6 percent down to 4 percent. That’s another stimulus in the
system. And let’s not forget also that somehow Europe has managed to press
the pause button on their crisis. So we’re having a good cyclical bounce
and markets are right to reflect that. The question out there is can we
transform that into a secular bounce and the jury’s still out on that.

GHARIB: Let’s talk a little bit about the Federal Reserve. As you
know just yesterday, Federal Reserve Chairman Ben Bernanke was saying that
the U.S. recovery is frustratingly slow, but given today’s news, do you
think that Fed policymakers need it rethink their strategy of the super low
interest rates?

EL-ERIAN: So I think that everybody would agree that the last thing
you want to do right now is derail the cyclical bounce. So don’t look for
the Fed to do anything that would be a headwind to growth. So I don’t
expect it to be changing its language about interest rates. I expect them
to continue to tell us they’re going to be very accommodating and
everybody’s waiting for this critical mass, this escape velocity for our
economy and until there’s clear evidence of that, the Fed is going to
remain very loose for quite a long time.

GHARIB: Let’s talk a little bit about the markets. Of course today
we had a really nice rally coming off of very strong January. Do you think
that we’re at a turning point in the markets?

EL-ERIAN: I think that we are at a healing point, but that investors
have to be careful. So let me be specific. Whatever your normal equity
exposure is and that of course is a reflection of your objectives in terms
of return in your risk tolerance, at these levels of valuations you want to
be a little under weight. You want to have selective commodities in your
portfolio. You want to have gold. You want to have oil. There’s some major
geopolitical uncertainties out there including Iran. We must not forget
that. And finally you want to limit your bond exposure to maturities within
the seven-year bucket. That I think is how investors want to be positioned
in order to take advantage of the cyclical bounce, but also reflect the
fact that the longer-term outlook is still uncertain.

GHARIB: All right, a lot to think about. Thank you so much for your
insight. We always enjoy hearing from you.

EL-ERIAN: Thank you, Susie.

GHARIB: And we’ve been speaking with the CEO of Pimco, Mohamed el-
Erian.


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