DOW JONES NEWSWIRES
The chief executive of one of the world's largest bond funds
said Tuesday that investors are facing "a world of lower growth and
accelerated country realignments" as global markets look to
reestablish themselves in the wake of last year's shocks.
Investors are on a journey to a "new normal," Pacific Investment
Management Co.'s Mohamed El-Erian said, adding that they must
determine how to reconcile short-term imperatives that conflict
with longer-term realities.
Firms and investors should question theories that suggest that
following a shock, markets will not revert to business as usual,
El-Erian said, and be suspicious of forecasters who say the potency
of policy measures are changing.
But despite applying those standards, it's difficult to dismiss
the view that we're in the middle of a regime change, El-Erian
said. Once the immediate dislocation associated with the
deleveraging, de-globalization and re-regulation is over, investors
and policy makers will "find themselves in a landscape that only
partially resembles that which dominated the 2003-2007 period," he
said.
Long-term investors can use that to their advantage as many
other market participants are looking to the short term, he
said.
El-Erian identified several questions to ask to determine how to
navigate the road to the new normal about how the balance will
shift away from markets and toward governments, how governments
will finance their growing role in the economy, and what that means
for the U.S.
He said policy makers must intervene in the market with a clear
idea of when and how they will get out, manage their involvement in
a way that minimizes disruptions to the markets and address any
adverse consequences of their actions. Governments, especially the
U.S., will have to signal that they intend to return to
"longer-term fiscal sustainability," he said, by generating budget
surpluses.
El-Erian said the U.S. has until recently seen lower funding
costs and greater flexibility in macroeconomic policy. "In other
words," he said, "the U.S. has operated like a large closed economy
even though it is an increasingly open economy that is gradually
losing its size advantage."
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com