Opinion

Chrystia Freeland

Readers’ questions for El-Erian

Chrystia Freeland
Apr 1, 2011 00:09 UTC

As Chrystia threatened at the end of her interview with Mohamed El-Erian today, we’ve compiled all the questions our readers submitted via the Newsmaker blog and Twitter and e-mailed them to him. El-Erian will be flying to Europe tonight after he finishes up his business in New York, and while we do hope he gets a little sleep, we also hope he stays up long enough to answer all of your questions.  We’ll post his answers right here once we receive them.

Global Markets

Are the current “mixed signals” by the various markets similar to the ones you said were being transmitted before the financial crisis, and do you think that the current stock market trading activity signals caution, confidence or complacency? (from i8emallup)

Are the markets too complacent about potential risks to growth (disturbance in global production chains, fiscal tightening) and inflation (Japans expected demand for resourses, continued strength in China, core EMU)? (From Michael D-R)

What percentage chance exists of default by G20 & G7 governments? (from Mark Melin)

Middle East

How can the Middle East conquer corruption and power-abuse that has been inherited for generations? is there hope in the new “governments”? (From Lalla Nashta)

Your cleanest dirty shirt

Chrystia Freeland
Mar 31, 2011 19:10 UTC

To Mohamed El-Erian, the world’s major reserve currencies — the dollar, the euro, and the yen — are a bit like your dirty laundry; every shirt is dirty, but compared to the alternatives, they historically have been the “cleanest dirty shirts.”  El -Erian thinks that arrangement will not last forever.  He tells Chrystia that a long-term trade that PIMCO likes is a long position in the currencies of the successful emerging markets — the clean shirts — funded by the currencies of the U.S., the EU, and Japan.

El-Erian forecasts a medium-term weakening of the yen as Japan will repatriate more funds than the market currently expects in order to finance reconstruction.  Of the three options Japan has for funding reconstruction — borrowing, repatriating funds, or monetizing debt — repatriation has the fewest risks.  With a debt-to-GDP ratio well north of 200% and a diminished credit rating of AA-, borrowing money or monetizing debt could each cause a rise in Japan’s interest rates.

In the near-term, though, before Japan can think about reconstruction it will have to muddle through the immediate aftereffects of the tsunami: a one-off destruction of wealth and a 25% reduction in Japanese energy generation.  El-Erian pointed out that auto companies and tech firms around the world continue to announce production slowdowns due to the tsunami’s of supply chains — just two days ago Ford announced a temporary shutdown of a factory in Belgium in order to preserve car parts.  His biggest worry is the “stagflationary wind” that’s blowing from Japan towards the rest of the global economy.

The bond vigilante speaks

Chrystia Freeland
Mar 31, 2011 18:22 UTC

Reuters finance blogger Felix Salmon has previously written that “if you wanted to put a face to the famous bond vigilantes, it would probably feature that famous moustache” of PIMCO CEO Mohamed El-Erian.  Well, this morning Chrystia sat down with this famous bond vigilante for an hour-long Thomson Reuters Newsmaker interview and asked him why PIMCO decided to dump all of its holdings of U.S. government bonds earlier this month.  Here’s what he had to say:

Everything you buy and hold must have value; it’s that simple…  And our estimation at the time was that there was better value elsewhere…  Now if the valuations of Treasuries change — and it has been changing; they have been getting cheaper — we will revisit that.  But when we looked at what else was available, you have Treasury-like instruments that offer you a lot more value than Treasuries.  You have government instruments in other countries that offer you more value.  We made a portfolio decision that said at these prices we find better value elsewhere in the fixed-income market for this mutual fund, and as it turned out, that was the right decision to make.

El-Erian listed three concerns PIMCO had about the market for U.S. bonds.  First, the Fed, which has been buying 70% of new Treasury issuance in its second round of quantitative easing, will cease it purchases in June, and it is unclear who will step in to buy Treasuries at current prices.  As El Erian said, “when you can’t identify a buyer, you don’t want to hold that instrument.”  Second, El-Erian doubts that Washington can find a political solution to the U.S.’s medium-term fiscal problem in the near future.  Finally, U.S. inflation is a worry for PIMCO.  Though increases in the prices of food and energy have yet to feed back into core inflation, El-Erian’s experience investing in emerging markets has taught him that the convergence point between headline and core inflation will be higher this time around than it has been in recent decades.

AT&T CEO Stephenson defends T-Mobile deal

Chrystia Freeland
Mar 30, 2011 18:38 UTC

Fresh off of last week’s announced bid for T-Mobile, AT&T CEO Randall Stephenson sat down with Chrystia following a breakfast this morning at the Council on Foreign Relations in New York.  He explained why this deal is good for his shareholders:

Over the last four years, since the mobile broadband era was introduced, the volumes on our network are up 8,000%.  We’re investing an incredible amount of capital, but we look out into the future and we do not believe, that given the growth rates we expect in the future, that there is adequate spectrum in the industry to accommodate this growth.  The infrastructure, the sell-side infrastructure — the build requirements –  are really extensive.  You do this transaction, it gives you an immediate lift of capacity in the neighborhood of about 30% in most of our major metropolitan areas.  That kind of capacity lift is future growth and future opportunity to serve customers, so this good for the shareowners.  The synergies associated with this from a shareowner standpoint represent in excess of $40 billion of synergies.

The AT&T chief was sanguine that the Department of Justice would ultimately bless the T-Mobile acquisition sometime next year, noting that in 18 of the top 20 mobile telecommunications markets in the U.S., consumers have a choice of at least five providers. When asked if he was prepared to offer consumer guarantees like price caps, Stephenson replied that recent history clearly shows consumer prices fall in the wake of this type of big merger.

Yes, online media brands do matter

Chrystia Freeland
Mar 25, 2011 15:52 UTC

Shakespeare was wrong. He assured us that a rose by any other name would smell as sweet. One reason that is such a beloved line is its comforting message that intrinsic quality, rather than external labels, is what really counts. But recent research from a Harvard Business School professor suggests that, at least when it comes to the written word, labels matter quite a lot.

That is one of the conclusions of not-yet-published work by Bharat Anand, the professor at Harvard, and Alexsander Rosinski, a former visiting researcher there. The two wanted to figure out two things: whether brands influence our perceptions of quality, and whether adjacent advertising does.

It has become conventional wisdom to believe that information has been commodified. Google is the great leveller, with algorithms that can promote content-farm stories ahead of Pulitzer Prize-winning investigations. But it turns out that, to readers, provenance still matters a lot.

Americans live in Russia, but think they live in Sweden

Chrystia Freeland
Mar 22, 2011 17:53 UTC

Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz. This isn’t the set-up for some sort of politically incorrect Catskills stand-up joke circa 1960. It is the takeaway from a remarkable study by Michael Norton and Dan Ariely on how Americans think about income inequality.

The right likes to argue that income inequality as an issue doesn’t win elections because Americans don’t begrudge the rich so much as they want to join them. The Norton and Ariely study suggests otherwise. Given a choice, the authors find, Americans would prefer to live in a society more equal than even highly egalitarian Sweden.

Another popular view is that income inequality isn’t experienced as acutely by most Americans as the numbers suggest because of how much can be “consumed” by the lower rungs of the nation’s socioeconomic ladder. No less a figure than Alan Greenspan, the maestro himself, once made this case at the Federal Reserve’s annual Jackson Hole conference, presenting data on the consumption of dishwashers, microwaves and clothes dryers showing that if measured by the possession of these goods – as opposed to the huge and growing income divide — inequality was decreasing.

Syria’s charming offensive

Chrystia Freeland
Mar 17, 2011 15:40 UTC

It is a truth universally acknowledged that a dictator who wants to be accepted by polite Western society should look for a charming, glamorous wife. That, at least, is what the world’s autocrats are learning from the example of Bashar al-Assad, the president of Syria.

First, his wife, Asma al-Assad, was the subject of a glowing profile in the March issue of the U.S. edition of Vogue, which described this ‘‘rose in the desert’’ as ‘‘the freshest and most magnetic of first ladies’’ and reported on the ‘‘wildly democratic principles’’ that govern family life chez Assad. Now, the Harvard Arab Alumni Association has organized an event in Damascus, ‘‘under the patronage’’ of Mrs. Assad, who was scheduled to deliver a keynote address on Thursday.

On Wednesday, the day before the planned Harvard alumni event, security officers beat and detained a group of nonviolent demonstrators who gathered to call for the release of the estimated 3,000 to 4,000 political prisoners in the country.

Finding a place in a rebalanced global economy

Chrystia Freeland
Mar 14, 2011 17:15 UTC

Warning — unashamedly patriotic Canadian content to follow!!! If you are a member of the “Blame Canada” constituency, or if you share Michael Kinsley’s view that the world’s most boring headline is “Worthwhile Canadian Initiative,” then please read no further ….

I, however, am an enthusiastic Canadian, and I was absolutely thrilled earlier this year when Morris Rosenberg, the Deputy Minister of Foreign Affairs, invited me to deliver the annual O.D. Skelton lecture on foreign policy at the Department of Foreign Affairs and International Trade in Ottawa.

At the beginning of my talk last week, I asked for feedback and promised to post my lecture online so that anyone who is interested could read it and respond. Here it is. The O.D. Skelton lectures are published online and in pamphlet form by the DFAIT and before mine appears I would love to take advantage of your ideas to improve it.

Mary Meeker captures America in PowerPoint

Chrystia Freeland
Mar 11, 2011 16:09 UTC

Mary Meeker first became famous as Queen of the Net. That is the title Barron’s magazine granted her in 1998, after a 1995 report she wrote for Morgan Stanley predicted the power and shape of the then still exotic World Wide Web. Ms. Meeker, who recently moved to San Francisco to become a partner at the venture capital firm Kleiner Perkins Caufield & Byers, continues to be a forward-thinking guide to the global technology revolution: Her recent reports on mobile devices and the Internet in China have joined her 1995 ‘‘Internet bible’’ as instant classics among the digital cognoscenti.

One of the secrets of Ms. Meeker’s success is her flair for PowerPoint. In the hands of most of its users, PowerPoint is both an excuse for fuzzy thinking and one of its causes. But Ms. Meeker, who told me working with PowerPoint was a fun personal hobby, is a poet of this usually dreary and bureaucratic medium.

Ms. Meeker’s PowerPoint presentations pack a powerful numerical punch — which appeals to everyone’s inner geek and confers a potent aura of legitimacy in this age of the supremacy of data. But her real genius is using those charts and graphs to tell a story, always with an emotive zing and a dramatic narrative arc.

Even the IMF now agrees it’s all about jobs, jobs, jobs

Chrystia Freeland
Mar 7, 2011 22:38 UTC

Regular readers of Chrystia’s column will remember that she recently called out the IMF for failing to foresee the destabilizing effects of rising youth unemployment in Egypt. Specifically, in its April 2010 Article IV assessment of Egypt, the IMF concluded the country’s economy was in fact more resistant to external shocks thanks to “sustained and wide-ranging reforms.” Well, it turns out that the IMF has evolved in its thinking.  In an exclusive interview today with Chrystia and Reuters IMF correspondent Lesley Wroughton, IMF First Managing Director John Lipsky announced that going forward the Fund will more heavily weight unemployment risks in its annual country assessments.  “We think that these are very important issues and need to be looked at, and again, not just in cases where it might result in political turmoil but just as a matter of course in examining economic developments and policies,” Lipsky said.

Watch the whole exchange here:

Posted by Peter Rudegeair.

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