Tuesday, January 22, 2013

PIMCO’s Secular Forum Preview

In case you missed this, El-Erian is out with a preview of Pimco's annual Secular Forum, to be held in May. Given the set of questions concerning the future that will be addresses, this should be something to watch. 

So much for the past and present; how about the future?

Judging from the secular inputs already collected, including from discussions at our Investment Committee and Cyclical Forums, the upcoming May 2013 event could well be one of the more challenging Secular Forums to date.

Economics and finance are interlinked in an ever more complex fashion. And the critical mapping to beta returns, alpha generation and risk management is influenced by a myriad of factors that are strictly exogenous to the markets (e.g., unusual political dysfunction, highly experimental central bank policies, delicate geopolitics, complicated middle-income transitions in systemically important emerging economies, and exciting technological breakthroughs).

Not surprisingly, several interesting secular questions have already arisen within PIMCO, including:
  • How will the gradual economic and financial healing of the West (most visible in the corporate, housing and banking sectors) interact with increasingly embedded structural low growth dynamics and stubborn pockets of indebtedness that many of these economies still face?
  • If, when and how will the benefits of unusual central bank activism – which has altered historical asset class correlations and significantly impacted returns – get overwhelmed by what Federal Reserve Chairman Ben Bernanke has labeled the "costs and risks" of this experimental policy approach?
  • Can emerging economies, including China, evolve their economic models rapidly enough while simultaneously gaining better accommodation within a global governance system still dominated by the West? And what will this mean for their asset allocation and risk preferences as major global investors in certain asset classes?
  • How will the related investment opportunities in emerging markets benefit next from the trio of credit maturation, asset class deepening and investment pull from unusual policy activism in advanced countries?
  • How will capital/labor distribution, and the related impact on corporate earnings and consumption, get affected by the interaction of highly polarized politics with heightened income and wealth inequalities?
  • At what point will technological breakthroughs evolve from sectoral influences to more general macro ones, including those that are fundamentally altering input prices and acting as major disruptors to traditional institutional operating models?

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