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Party On, Mohamed

01/23/2018

Mohamed El-Erian was born in New York City in 1958, to an Egyptian father and French mother.  Educated at Cambridge and Oxford, he went on to manage the Harvard endowment fund, to be co-CEO of bond giant PIMCO, along with the legendary Bill Gross.  Today, he is Chief Economic Advisor the PIMCO parent company of Allianz.  He is also one of my favorite thinkers!

Yesterday, I attended his lecture entitled “Are we in a bubble?”  Before he began, he polled the crowd to see how the crowd would respond.  Two out of 3 attendees said:   No, the stock market is not in a bubble.

He went on to explain that the current melt-up in the stock market is because the Federal government just decreased corporate expenses significantly with a tax cut, leaving more profit for the company.  However, he pointed out there are three mistakes that especially worry him.

The first is a geopolitical mistake, mentioning North Korea in particular.  As wars consume vast quantities of money and material, (not to mention human lives), that is money and materials not available for other things.

The second is a market mistake, such as a new “flash crash”.  As he was speaking at the ETF Conference, he was brave to mention that ETFs might cause such a market mistake.  (He did not mention bitcoin, but that is my worry.)

The third is an economic mistake.  While he gave high marks to the U.S. Federal Reserve for smoothly beginning a normalization of monetary policy (think:  higher interest rates), the thing that keeps him awake at night is the possibility of the four biggest central banks all raising rates at the same time and doing so too quickly.  That is a scary thought indeed!

After all that, he re-polled the audience and learned that now three out of four attendees thought:  No, there is no bubble in the stock market.  In other words, the more he identified his worries, the less worried the audience became.  Maybe, the ability to articulate an anxiety reduces the fear caused by  that anxiety?

Separate from all that, I confess to having great respect for him personally.  When he was co-CEO of PIMCO, his daughter wrote him a letter listing the 22 major events in her life that he had missed. He immediately resigned from PIMCO.

Lastly, he is famous for being a truly die-hard fan of the pathetic New York Jets of the NFL.  He hates the New England (think:  Boston) Patriots so much that he bets against them even though he knows he will lose.   Sure wish I could watch the Super Bowl with him . . . 

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