Mohamed El-Erian, PIMCO: The Extended 2011 IA 25 Profile

The CEO of PIMCO has made himself the 'go-to guy' for insight on what international events mean for the markets

This is an extended version of the profile that appeared in the May issue of Investment Advisor, part of AdvisorOne's Special Report profiling this year's members of the IA 25, the most influential people in and around the advisor universe. See the complete list and Special Report schedule for extended profiles of all the 2011 members of the IA 25.

Besides being at the helm of the world’s largest bond fund, Mohamed El-Erian, PIMCO’s CEO and co-chief investment officer, has become the go-to guy for deciphering what the upheaval in the Middle East and North Africa--as well as the latest tragedy in Japan--means for the global economic environment.

Mohamed El-Erian, CEO, PIMCOEl-Erian, the son of an Egyptian diplomat, told Investment Advisor in early April that “the uncertainty premium has increased” in what he calls the “systemically important” Middle East. This uncertainty, he said, is being “reflected in high and volatile oil prices which, for the U.S. and other countries, translate in both a negative supply shock and a negative demand shock: production input prices go up and consumers have less money to spend on goods and services.”

What looms as a major threat for the global economy, El-Erian said, is that the disruptions in the Middle East “spread to other oil exporting countries, resulting in a further spike in oil prices and an even larger uncertainty premium.” The long-term stability of this region, he continued, “requires that governments respond to the legitimate demands of their populations in an orderly, timely and sustained manner.” The Middle East has “now started a journey towards greater democracy and individual freedom,” he continued. However, “the process is neither immediate nor linear. As Egypt is finding out, there are bumps along the way, and simultaneous progress is required on three fronts: political, economic and social.”

Investors’ portfolios, El-Erian advised in his email message, should be positioned to “navigate a tug of war that will play out over the next few quarters.” On the one hand, he said, “important sectors of the global economy continue to heal. This includes many multinationals that enjoy top line revenue growth, have reduced costs, are highly profitable, have termed out their debt and hold lots of cash.” On the other hand, “we have the stagflationary winds associated with high oil prices, the three tragic disasters in Japan, and the adverse shock to public sector deficits and balance sheets in many advanced economies.”

The tragedy in Japan, El-Erian said, “is yet another negative demand and supply shock for the global economy. Consumption in the third largest economy in the world will fall in the period until the reconstruction effort is launched in earnest, which will take some time,” he said. Also, “global production chains are being disrupted--a phenomenon that is already impacting auto and technology companies around the world.”

Read more about the rest of the 2011 IA 25.

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