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Pimco Guru: 10 Percent Stock Drop Ahead



December 28, 2009 – Comments (5)

Homes are selling at their fastest clip in nearly three years, the unemployment rate is falling and stocks are up 66 percent since their March lows — the best performance since the 1930s.

What's not to like?

Plenty, according to Mohamed El-Erian, chief executive of giant bond manager Pimco.

The investor says the recovery may be gaining steam but is no different than a kid who eats too much candy at one of the birthday parties his 6-year-old daughter attends.

"We're on a sugar high," El-Erian says. "It feels good for a while but is unsustainable."

His point: This burst of economic activity fed by government spending and near-zero interest rates will soon peter out.

Full article

5 Comments – Post Your Own

#1) On December 28, 2009 at 12:16 PM, Teacherman1 (< 20) wrote:

I always take my equity investment advice from a "Bond Guy", especially when he under preformed most others in equities this year.

Don't get me wrong, he and Gross are very good at what they do, but what they do is mostly not equities.

I also expect a correction in the markets. There are always corrections in the markets.

What he had to say was not anything new, but because of who he is, it gets played up.

JMO and worth exactly what I am charging for it. 

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#2) On December 28, 2009 at 1:44 PM, Imperial1964 (93.97) wrote:

I always watch the bond guys closely.  The debt markets can make or break the equity market.

Before Lehman blew up I bought SPY Puts based on the divergence between the equity options market (cheap Puts) and the short-term bond and commercial paper markets.

That was quite profitable.

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#3) On December 28, 2009 at 1:47 PM, Harold71 (20.04) wrote:

Ten percent?  That's like saying it will snow in Minnesota sometime this winter.


I see your ten percent and raise you forty.



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#4) On December 29, 2009 at 6:58 AM, neskolf (29.29) wrote:

Mr. El-Erian's prediction could prove correct.  But what makes him think that this government has any inclination towards cutting off the sugar?

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#5) On December 31, 2009 at 5:08 AM, alexxlea (62.74) wrote:

If 10% somehow made some magic math equal a 500 or more drop in the s&p or an implosion of the greenback then I might be inclined to wholeheartedly agree.

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