El-Erian: Walk, Don't Run From Equities Risk

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
Topic Author
ricb
Posts: 64
Joined: Sun Feb 17, 2013 9:03 am

El-Erian: Walk, Don't Run From Equities Risk

Post by ricb » Tue Jun 04, 2013 11:21 pm

I'm a bit confused - anyone care to apply/clarify El-Erian's CNBC comments (below) to a TSM/TBM 3-Fund Portfolio? Is El-Erian saying reduce both stocks and bonds and raise cash, e.g., a 50/50 TSM/TBM AA becomes a 40/40/20 TSM/TBM/CASH? If so, is this market-timing until the Fed behaves less intrusively/influentially because "normally" rebalancing doesn't reduce both stocks and bonds, right?

http://finance.yahoo.com/news/el-erian- ... 57122.html

[Content in excess of copyright fair-use removed by admin LadyGeek]

umfundi
Posts: 3361
Joined: Tue Jun 07, 2011 5:26 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by umfundi » Wed Jun 05, 2013 2:45 am

Ignore the noise, stay the course.

Keith
Déjà Vu is not a prediction

User avatar
gnosis
Posts: 347
Joined: Wed Aug 13, 2008 9:05 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by gnosis » Wed Jun 05, 2013 5:36 am

Never take advice from a Jets fan.

User avatar
HardKnocker
Posts: 2063
Joined: Mon Oct 06, 2008 11:55 am
Location: New Jersey USA

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by HardKnocker » Wed Jun 05, 2013 5:48 am

"Nobody knows nothin' "-- John Bogle
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by YDNAL » Wed Jun 05, 2013 5:51 am

ricb wrote:I'm a bit confused - anyone care to apply/clarify El-Erian's CNBC comments (below) to a TSM/TBM 3-Fund Portfolio? Is El-Erian saying reduce both stocks and bonds and raise cash, e.g., a 50/50 TSM/TBM AA becomes a 40/40/20 TSM/TBM/CASH? If so, is this market-timing until the Fed behaves less intrusively/influentially because "normally" rebalancing doesn't reduce both stocks and bonds, right?
I'm a bit tired that over the years (and years, and years) nothing changes.

Mohamed A. El-Erian, born August 19, 1958 (age almost 55) in Cairo, Egypt is the CEO and co-CIO of PIMCO, must love his job, and earns easy and significant money while at it !! Otherwise, IF over the years he knew exactly what WILL happen in the market, why is he still working ?

That's all I'm going to say moving forward in these threads. I will just change the name, date of birth, and occupation of the person.
Last edited by YDNAL on Wed Jun 05, 2013 6:04 am, edited 1 time in total.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Call_Me_Op
Posts: 7428
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Call_Me_Op » Wed Jun 05, 2013 6:00 am

ricb wrote:I'm a bit confused - anyone care to apply/clarify El-Erian's CNBC comments (below) to a TSM/TBM 3-Fund Portfolio?
Why do you care?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
VictoriaF
Posts: 19072
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by VictoriaF » Wed Jun 05, 2013 6:19 am

Run, don't walk from the pundit proclamations.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Rodc » Wed Jun 05, 2013 6:36 am

"Reduce your equity risk, your liquidity risk, your credit risk. Those are the three to reduce," he added.
To answer your question:
I'm a bit confused - anyone care to apply/clarify El-Erian's CNBC comments (below) to a TSM/TBM 3-Fund Portfolio?
Liquidity risk is low in this portfolio, but you could reduce it by moving from TBM to a treasury fund. This would also reduce credit risk. You could reduce equity risk a little by moving from TSM to S&P 500 (dropping small caps) or by increasing bonds or adding cash.

Frankly other than increasing bonds or cash that all seems like too little to matter enough to care. If one had a different base portfolio these changes might matter more.

Entirely unclear that increasing bonds should be expected to be a winning move, and less clear beyond that that such a move would be a winning move, since at least for some time bond fund NAV will drop if rates rise, and bond yields will continue to be very low if they don't.

No reason to think any of this is correct or important.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

Browser
Posts: 4857
Joined: Wed Sep 05, 2012 4:54 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Browser » Wed Jun 05, 2013 10:17 am

Your asset allocation should always allow for a 50% drop in stock prices -- even 75% if you want to travel back to some of the worst case events. A drop of that magnitude could happen today, next year, anytime, maybe never. But if you're prepared to encounter it then you've done about everything you can do, yes? Evaluate your risk tolerance and invest accordingly.
We don't know where we are, or where we're going -- but we're making good time.

scone
Posts: 1457
Joined: Wed Jul 11, 2012 4:46 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by scone » Wed Jun 05, 2013 10:34 am

What Browser said. You have to allow for the "left fat tail," the worst case scenario. I have "stress tested" our portfolio quite a bit recently, using Otar's software. That was very helpful.

Personally, as we are getting close to retirement, I am putting more money into cash and our stable value fund. I'm also going shorter in terms of my bond duration. But I would be doing this stuff regardless of the economic climate. I am "de-risking" the portfolio as a whole in preparation for the day when we will begin to spend the money. At some point I may even put some of the bond money into a CD ladder. I'm not trying to get rich here, so for me taking more risk than I absolutely must serves no purpose at this point.

But if I were young, I might very well "get down on my knees and pray for a market crash", as Dr. Bernstein once said, so as to accumulate assets at a lower price. In which case Mr. El-Erian's comments might not apply.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

User avatar
TomatoTomahto
Posts: 9755
Joined: Mon Apr 11, 2011 1:48 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by TomatoTomahto » Wed Jun 05, 2013 10:39 am

I enjoy listening to Bloomberg Radio's "Bloomberg Surveillance" show with Tom Keene in the morning as I'm driving. The show concentrates on macroeconomics, and isn't usually full of people talking their book. Mohamed El-Erian is on there periodically, and he has a style that makes you think he really knows the future. Over the years, I've found him more and more presumptuous and full of himself; I usually mute the radio for a while until I'm sure he's not there any more. Smart guy, but his predictions are no better than anyone else's.
Okay, I get it; I won't be political or controversial. The Earth is flat.

rmark1
Posts: 359
Joined: Sat Jun 16, 2007 7:43 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by rmark1 » Wed Jun 05, 2013 11:01 am

Having read the article, I don't know what he means. Maybe it's just bad reporting. My best guess is buy short term government bonds.

User avatar
Raymond
Posts: 1484
Joined: Mon Apr 16, 2012 6:04 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Raymond » Wed Jun 05, 2013 11:06 am

I imagine he's good at buying bonds, selling bonds, or whatever - but as for seeing into the future, well, see below :happy

Sturgeon's Law
"Ritter, Tod und Teufel"

User avatar
tadamsmar
Posts: 8584
Joined: Mon May 07, 2007 12:33 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by tadamsmar » Wed Jun 05, 2013 11:12 am

Doing to opposite of what El-Erian recommends has had a good track record in recent years if I recall correctly.

User avatar
tadamsmar
Posts: 8584
Joined: Mon May 07, 2007 12:33 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by tadamsmar » Wed Jun 05, 2013 11:13 am

What that advice actually means is:

"Click on this and then click on some of the ads"

richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by richard » Wed Jun 05, 2013 11:22 am

YDNAL wrote:Mohamed A. El-Erian, born August 19, 1958 (age almost 55) in Cairo, Egypt is the CEO and co-CIO of PIMCO, must love his job, and earns easy and significant money while at it !! Otherwise, IF over the years he knew exactly what WILL happen in the market, why is he still working ?
Reportedly he made over $100 million last year and BIll Gross made over $200 million. Gross has a net worth over $2,300 million.

They likely do love what they're doing.

ge1
Posts: 498
Joined: Sat Apr 28, 2012 8:15 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by ge1 » Wed Jun 05, 2013 12:43 pm

looks like smart advise to me

Tom_T
Posts: 1476
Joined: Wed Aug 29, 2007 2:33 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Tom_T » Wed Jun 05, 2013 12:52 pm

tadamsmar wrote:Doing to opposite of what El-Erian recommends has had a good track record in recent years if I recall correctly.
That is also true of Peter Schiff, Bill Gross, and numerous other "experts".

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by YDNAL » Wed Jun 05, 2013 1:01 pm

richard wrote:
YDNAL wrote:Mohamed A. El-Erian, born August 19, 1958 (age almost 55) in Cairo, Egypt is the CEO and co-CIO of PIMCO, must love his job, and earns easy and significant money while at it !! Otherwise, IF over the years he knew exactly what WILL happen in the market, why is he still working ?
Reportedly he made over $100 million last year and BIll Gross made over $200 million. Gross has a net worth over $2,300 million.

They likely do love what they're doing.
Many people may love what they do if I making $100 million per year!*

That doesn't mean they know what WILL happen in the market next year, next week, tomorrow.

* on second thought, they may also be miserable ____.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

User avatar
Aptenodytes
Posts: 3763
Joined: Tue Feb 08, 2011 8:39 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Aptenodytes » Wed Jun 05, 2013 1:12 pm

richard wrote:
YDNAL wrote:Mohamed A. El-Erian, born August 19, 1958 (age almost 55) in Cairo, Egypt is the CEO and co-CIO of PIMCO, must love his job, and earns easy and significant money while at it !! Otherwise, IF over the years he knew exactly what WILL happen in the market, why is he still working ?
Reportedly he made over $100 million last year and BIll Gross made over $200 million. Gross has a net worth over $2,300 million.

They likely do love what they're doing.
Landy's point is that he wouldn't be working, even for $100m per year, if he were telling the truth about his ability to predict bond markets. Ergo he is lying.

$100m is chump change compared to what you earn when you bet correctly on a shift in capital markets. George Soros has made individual bets in the currency markets that earned him $1 billion. Someone whose predictions were as accurate as El-Erian's are confident would be making such money routinely. The fact that El-Erian isn't making such bets reveals his true belief about his predictive powers, which is that they are nil.

pastafarian
Posts: 386
Joined: Fri Apr 20, 2007 12:55 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by pastafarian » Wed Jun 05, 2013 2:15 pm

VictoriaF wrote:Run, don't walk from the pundit proclamations.
Including ones by guys named Zvi Bodie? :wink:

umfundi
Posts: 3361
Joined: Tue Jun 07, 2011 5:26 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by umfundi » Wed Jun 05, 2013 2:34 pm

pastafarian wrote:
VictoriaF wrote:Run, don't walk from the pundit proclamations.
Including ones by guys named Zvi Bodie? :wink:
Bodie is a market timer? :shock:

Keith
Déjà Vu is not a prediction

User avatar
VictoriaF
Posts: 19072
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by VictoriaF » Wed Jun 05, 2013 3:29 pm

pastafarian wrote:
VictoriaF wrote:Run, don't walk from the pundit proclamations.
Including ones by guys named Zvi Bodie? :wink:
Zvi bodes well.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by richard » Wed Jun 05, 2013 3:58 pm

Aptenodytes wrote:
richard wrote:
YDNAL wrote:Mohamed A. El-Erian, born August 19, 1958 (age almost 55) in Cairo, Egypt is the CEO and co-CIO of PIMCO, must love his job, and earns easy and significant money while at it !! Otherwise, IF over the years he knew exactly what WILL happen in the market, why is he still working ?
Reportedly he made over $100 million last year and BIll Gross made over $200 million. Gross has a net worth over $2,300 million.

They likely do love what they're doing.
Landy's point is that he wouldn't be working, even for $100m per year, if he were telling the truth about his ability to predict bond markets. Ergo he is lying.

$100m is chump change compared to what you earn when you bet correctly on a shift in capital markets. George Soros has made individual bets in the currency markets that earned him $1 billion. Someone whose predictions were as accurate as El-Erian's are confident would be making such money routinely. The fact that El-Erian isn't making such bets reveals his true belief about his predictive powers, which is that they are nil.
Bill Gross has $2.3 billion. Do you really think he has to work?

How many years at $100 million would you need to retire? How much more do you need each year?

Remember the saying about not taking more risk than you have to? Why would you expect El-Erian or Gross to take excessive risks?

Soros runs a hedge fund. PIMCO runs mutual funds. Both are managing money for others.

PIMCO has managed the most successful bond fund ever. They have a record of beating their benchmark, not all the time but enough to make a significant difference. Why are you sure they are no good at predicting markets?

pastafarian
Posts: 386
Joined: Fri Apr 20, 2007 12:55 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by pastafarian » Wed Jun 05, 2013 4:05 pm

VictoriaF wrote:
pastafarian wrote:
VictoriaF wrote:Run, don't walk from the pundit proclamations.
Including ones by guys named Zvi Bodie? :wink:
Zvi bodes well.
You go girl. :happy Keith...see what I mean? Just like a Tom Jones concert.

User avatar
VictoriaF
Posts: 19072
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by VictoriaF » Wed Jun 05, 2013 4:25 pm

pastafarian wrote:
VictoriaF wrote:
pastafarian wrote:
VictoriaF wrote:Run, don't walk from the pundit proclamations.
Including ones by guys named Zvi Bodie? :wink:
Zvi bodes well.
You go girl. :happy Keith...see what I mean? Just like a Tom Jones concert.
Are you going to toss some knickers?

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

umfundi
Posts: 3361
Joined: Tue Jun 07, 2011 5:26 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by umfundi » Wed Jun 05, 2013 4:53 pm

VictoriaF wrote:
pastafarian wrote:
VictoriaF wrote:
pastafarian wrote:
VictoriaF wrote:Run, don't walk from the pundit proclamations.
Including ones by guys named Zvi Bodie? :wink:
Zvi bodes well.
You go girl. :happy Keith...see what I mean? Just like a Tom Jones concert.
Are you going to toss some knickers?

Victoria
Well, while I personally am not likely to toss my knickers at Taleb and Bodie, I am likely to toss my cookies at El-Erian et al. :P

Keith
Déjà Vu is not a prediction

User avatar
Blues
Posts: 1774
Joined: Wed Dec 10, 2008 11:58 am
Location: Blue Ridge Mtns

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Blues » Wed Jun 05, 2013 4:55 pm

umfundi wrote:Well, while I personally am not likely to toss my knickers at Taleb and Bodie, I am likely to toss my cookies at El-Erian et al. :P

Keith
At least El-Erian didn't say "walk like an Egyptian". :twisted:

I guess "Walk, Don't Run" makes El-Erian a "Venture" capitalist... :oops:

Image

Thank you, I'll be here all week...
“Tactics without strategy is the noise before defeat.” - Sun Tzu | "Everybody has a plan until they get punched in the mouth." - Mike Tyson

pastafarian
Posts: 386
Joined: Fri Apr 20, 2007 12:55 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by pastafarian » Wed Jun 05, 2013 6:03 pm

Hot off the electronic press, Fidelity offers 4 Strategies for Rising Rates.

gerrym51
Posts: 1679
Joined: Sat Apr 27, 2013 1:44 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by gerrym51 » Wed Jun 05, 2013 6:15 pm

if you listen to these guys nobody would invest in anything. bonds are bad,equities are bad,cd's are bad,commodities are bad.




sheesh!

User avatar
Random Musings
Posts: 5580
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Random Musings » Wed Jun 05, 2013 6:27 pm

pastafarian wrote:Hot off the electronic press, Fidelity offers 4 Strategies for Rising Rates.
And the quiet fifth - choose your own mix of strategies. That's the Fidelity CYA strategy.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

pastafarian
Posts: 386
Joined: Fri Apr 20, 2007 12:55 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by pastafarian » Wed Jun 05, 2013 7:26 pm

Random Musings wrote: And the quiet fifth - choose your own mix of strategies. That's the Fidelity CYA strategy.
I missed the CYA part, but I did see four strategies discussed in this forum. I'm not a Fido hater, they're the custodian for my employer's 401(k).

User avatar
VictoriaF
Posts: 19072
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by VictoriaF » Wed Jun 05, 2013 9:02 pm

pastafarian wrote:
Random Musings wrote: And the quiet fifth - choose your own mix of strategies. That's the Fidelity CYA strategy.
I missed the CYA part, but I did see four strategies discussed in this forum. I'm not a Fido hater, they're the custodian for my employer's 401(k).
Are those who prefer Vanguard to Fidelity infidels?

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

umfundi
Posts: 3361
Joined: Tue Jun 07, 2011 5:26 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by umfundi » Wed Jun 05, 2013 9:16 pm

VictoriaF wrote:
pastafarian wrote:
Random Musings wrote: And the quiet fifth - choose your own mix of strategies. That's the Fidelity CYA strategy.
I missed the CYA part, but I did see four strategies discussed in this forum. I'm not a Fido hater, they're the custodian for my employer's 401(k).
Are those who prefer Vanguard to Fidelity infidels?

Victoria
... and vice-versa: Vandals?

Keith
Déjà Vu is not a prediction

Beagler
Posts: 3442
Joined: Sun Dec 21, 2008 7:39 pm

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by Beagler » Wed Jun 05, 2013 9:53 pm

YDNAL wrote: Mohamed A. El-Erian, born August 19, 1958 (age almost 55) in Cairo, Egypt is the CEO and co-CIO of PIMCO, must love his job, and earns easy and significant money while at it !! Otherwise, IF over the years he knew exactly what WILL happen in the market, why is he still working ?
Plenty of people with the means to "retire" choose to continue to be productive. Rather than trade in their occupations for the rocking chair, they continue to press on regardless.
Image
http://tinyurl.com/lef4sew

Image
http://tinyurl.com/jwke7oc

Image
http://tinyurl.com/msryumu
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

pastafarian
Posts: 386
Joined: Fri Apr 20, 2007 12:55 am

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by pastafarian » Wed Jun 05, 2013 9:55 pm

VictoriaF wrote:Are those who prefer Vanguard to Fidelity infidels?
Now that's funny! :beer Hа здоровье!

User avatar
LadyGeek
Site Admin
Posts: 58776
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: El-Erian: Walk, Don't Run From Equities Risk

Post by LadyGeek » Wed Jun 05, 2013 10:02 pm

This thread has run its course and is locked (gone off-topic.) See: Forum Policy
Locked Topics

Moderators or site admins may lock a topic (set it so no more replies may be added) when a violation of posting policy has occurred. Occasionally, even if there are no overt violations of posting policy, a topic (or thread) will reach a point where the information content of the discussion has been essentially exhausted and further replies are much more likely to cause distress to the community than add anything of value.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Locked