Beware: El-Erian & Gross Selling Buicks…Not Chevys
After being mistaken for such a long period, certainly the PIMCO marketing machine would revise their pessimistic outlook, right? Wrong. In true biased fashion, El-Erian cannot admit defeat. Just this week, El-Erian argues stocks are artificially high due to excessive liquidity pumped into the financial system by central banks (see video below). I’m the first one to admit Federal Reserve Chairman Ben Bernanke is explicitly doing his best to force investors into risky sets, but doesn’t generational low interest rates help bond prices too? Apparently that mathematical fact has escaped El-Erian’s bond script.
Source: Yahoo! Finance (Daily Ticker)
El-Erian’s buddy, Bill Gross, can’t help himself from jumping on the stock rain parade either. Just six weeks ago Gross followed the bond-pumping playbook by making another dour prediction that the market would rise less than 5% in 2013. Unfortunately for Gross, his crystal ball has also been a little cloudy of late, with the S&P 500 index already up more than +6.5% this year. Since doomsday outlooks are what keeps the $2 trillion PIMCO machined primed, it’s no surprise we hear about the never-ending gloom. For those keeping score at home, let’s please not forget Bill Gross’s infamously wrong Dow 5,000 prediction (see article).
PIMCO Smoke & Mirrors: Stock Funds with NO Stocks
Just when I thought I had seen it all, I came across PIMCO’s Equity-Related funds. Never in my career have I seen “equity” mutual funds that invest solely in “bonds.” Well, apparently PIMCO has somehow creatively figured out how to create stock funds without investing in stocks. I guess that is one strategy for a bond-centric company of getting into the equity fund market? This is either ingenious or bordering on the line of criminal. I fall into the latter camp. How the SEC allows the world’s largest bond company to deceivingly market billions in bond-filled stock funds to individual investors is beyond me. After innocent people got fleeced by unscrupulous mortgage brokers and greedy lenders, in this Dodd-Frank day and age, I can’t help but wonder how PIMCO is able to solicit a StockPlus Fund that has 0% invested in common stocks. You can judge for yourself by reviewing their equity-related funds on their website (see also chart below):
PIMCO Equity-Related Funds with No Equity
PIMCO Active Equity Funds Struggle
With more than 99% of PIMCO’s $2 trillion in assets under management locked into bonds, company executives have made a half-hearted effort of getting into the equity markets, even though they’ve enjoyed high-fiving each other during the three-decade-long bond bull market (see Downhill Marathon Machine). In hopes of diversifying their bond-heavy revenue stream, in 2009 they hired the head of the high-profile $700 billion, government TARP program (Neil Kashkari). Subsequently, PIMCO opened its first set of actively managed funds in 2010. Regrettably for PIMCO, the sledding has been quite tough. In 2012, all six actively managed equity funds lagged their benchmarks. Moreover, just a few weeks ago, Kashkari their rock star hire decided to quit and pursue a return to politics.
Mohamed El-Erian and Bill Gross have never been camera shy or bashful about bashing stocks. PIMCO has virtually all their bond eggs in one basket and their leaderless equity division is struggling. What’s more, like some car salesmen, they have had a creative way of describing the facts. If it’s a Chevy or unbiased advice you’re looking for, I recommend you steer clear from Buick salesmen and PIMCO headquarters.
Wade W. Slome, CFA, CFP[b]®[/b]
Plan. Invest. Prosper.