PIMCO’s leaders reacted bluntly to the dour economic news of the past few days, highlighted by the third straight disappointing monthly jobs report on Friday that rattled investors and sent markets sharply lower, wiping out the remnants of the Dow’s 2012 rally by midday.
The Department of Labor said employers added just 69,000 jobs in May, the lowest monthly gain in a year and well below analysts’ consensus of between 210,000 and 215,000. The unemployment rate ticked up for the first time since last summer, to 8.2%, from 8.1%.
PIMCO’s Chairman Bill Gross (left) said that investors should avoid Europe, at least until credit begins flowing again from the private sector. PIMCO’s CEO Mohamed El-Erian called the report “grim” and said it’s “part of a very worrisome trend in which every major part of the global economy is slowing, and slowing rapidly.”
“We would suggest at PIMCO avoiding the entire eurozone until they can come up with some type of solution which involves the private sector,” Gross said in a radio interview with Bloomberg Surveillance. “What does the private sector mean? It means those institutions outside of euro land. It does mean PIMCO, it does mean China, it does mean those private institutions that are willing to take a chance again in terms of credit. Until you bring them back then no solution is really going to be possible.”
Yields on Treasuries may continue to decline beyond record lows even though the securities are overvalued because the U.S. remains the world’s refuge from turmoil, Gross said.
Yields reflect the “very weak economic outlook,” the chance central banks may seek more monetary easing, and “a huge flight quality,” El-Erian (left) said during an interview on Bloomberg Television’s In the Loop with Betty Liu.
“When people see this and are surprised by it, the natural human movement is to go to where there is safety,” El-Erian said. “You take the prices of these assets to ridiculous levels and that’s what we’re seeing today.”
Public-sector solutions to resolve the Europe’s debt crisis from institutions such as the International Monetary Fund and the ECB are “merely bodies exchanging cards in a game of old maid,” Gross added. “Sooner or later someone will go out of the game, perhaps Greece, and the maid will be exposed.”
“It’s increasingly inevitable that Greece will exit” the euro, El-Erian reiterated during the interview. “The only question is how disorderly is it. Europe hasn’t been [able] to put the firewalls and most importantly hasn’t been able to break the link between weak banks and weak sovereigns.”