Comments on: Pimco’s risk-filled global outlook

By: nose2066

nose2066 — Sat, 15 May 2010 03:43:22 +0000

There’s a lot of discussion of the role of government regulation in the PIMCO Outlook. After Enron went bankrupt, the Sarbanes-Oxley rules were put in place to prevent another Enron. I suspect that a number of CEO’s on Wall Street were probably in violation of those rules. There has been no mention of Sarbanes-Oxley by regulators, by government officials, or by the news media.

Which brings us to the idea that there can be a lot of rules and regulations in place, but they can be ineffective, or be ineffectively administered. In fact, the PIMCO document describes the future as: “a world with a flatter distribution of potential outcomes, fatter tails” – this implies more risk and widely variable outcomes – the exact opposite of what you would expect if government regulation were effective.

PIMCO thinks that “emerging economies will maintain their development breakout phase” even though PIMCO thinks that “concerns about the dark side of globalization tempers enthusiasm for its benefits”. So what happens if voters say: “we’ve had enough of this globalization thing”?

PIMCO thinks that Australia and Canada will be special beneficiaries of globalization (That means that Australia and Canada export raw materials to China). It’s probably worth remembering that the PIMCO guys are not infallible. There were a few times that they told us that they favored German bonds. Unless they hedged their currency exposure to the euro, that wouldn’t have worked out for them. Likewise they favored Canadian bonds in keeping with the globalization theme. The Canadian dollar is really a petro-dollar. It moves up and down with the price of oil. Again, with oil moving down, that wouldn’t have worked out unless PIMCO hedged the currency.

By: willid3

willid3 — Fri, 14 May 2010 00:13:44 +0000

I am thinking that the real problems are skill erosion as we have a lot of people who have been out of work for a long time, and we have gotten rid of so much work and never ever replaced it. the geographical problem was more tactical, yes some were stuck because of their houses, but jingle mail solved that, the bigger problem is the recession was almost nationwide, so there really was no place to go

By: ClarkTroy

ClarkTroy — Thu, 13 May 2010 18:41:59 +0000

Felix,

I wouldn’t be so sanguine about the geographical flexibility issue. A story in the Journal Tuesday (“Americans Moved in ’09, but Not Far”) indicated that people were moving at the lowest rate since 1948 (the lowest on record) last year and — when they did — it was within their home counties, presumably in with friends, family members, etc.

I think that skill erosion would be a less trivial risk had the lower end of the workforce not been so effectively deskilled and deracinated already.

Clark