Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Lead sentence: ”The Western-led global economic order had a bad 2023.”
Maybe just me. But I don’t understand El-Erian’s charm or appeal to many. He seems to command a lot of attention from media sources, but I’ve learned little from him over the years. Has a demeanor like a wet rag. Generally pessimistic. There’s a lot of perspectives from which to view the “Western-led global economic order” - I suppose. As for the U.S., record high equity markets, record low unemployment and a falling inflation rate aren’t exactly negatives. Go back and look at his advice all the way back to mid 2020. You’d have missed out on most of the huge market gains since than. And, yup, you’d have had an easier ride in ‘22. But all in all, you’d be behind the investing curve.
Here’s a prominent headline from late November 2022 - “Top economist Mohamed El-Erian says we’re not just headed for another recession, but a ‘profound economic and financial shift’ ” Gee. What great timing! Aren’t you glad you unloaded all your equity holdings in late ‘22? Hunkered down for that recession?
In El-Erian’s article there are many unsettling political undertones. There’s a political agenda in there somewhere and an abundance of negative aspersions. But he’s careful not to be very direct or “cross the line.” Hell, I don’t know if he’s right or wrong. But I do know the piece goes far beyond his supposed expertise in finance. Gross couldn’t stand him. Distrusted him. I suppose we might say they deserved one another. However, you’d probably have made more money from following Gross’s advice* than El-Erian’s. -
*Gross placed the wager, which he announced, as he often does, on X, in a somewhat obscure corner of the market. It involved loading up on short-dated interest-rate futures that closely track expectations for the Federal Reserve’s policy path .., Gross, via a spokesperson, confirmed he bought 3,000 three-month March 2025 contracts tied to the Secured Overnight Financing Rate. Following gains on Friday, the wager, which is still active, has likely netted a more than $5 million profit, according to Bloomberg calculations.” (from December 1, 2023)
@hank Agree with you about the politics in between the lines. I think his macro remarks about the future connect to a vague but real diminishment of Western/USA power, economically and politically. I already spouted in here about it at MFO, before. SOME of the reduction in power and influence is inevitable. We're no longer in the era of the Marshall Plan. And that Plan did, ultimately, what it was supposed to do.
The world is indeed coming slowly... slowly... ever-so-slowly, unglued. The Independence movements around the world since the 1960s left many countries without membership in the old "Colonial Club," so they were not "under the thumb" of the Brits or French or Americans. But many of those aspiring newly independent countries in MANY areas around the world have sadly become s-hole countries. The Rule of Law is CONSTANTLY a victim in the fights over elections and nepotism and internal strife and civil wars. While people starve.
The global south and the other "have-Nots" are jealous. But that's no surprise, and not a legitimate basis upon which to formulate effective policies on the part of the "Haves."
Think of it: drug cartels and STREET GANGS actually IN CHARGE in those countries to our South. Even if we implemented ANOTHER Marshall Plan, it could only accomplish so much; what needs to happen is for those countries to reclaim their own political, sovereign integrity; create a tax system and ENFORCE collections; real elections where the votes actually get ACCURATELY counted. Erase the corruption in government. (Marcos family, over and over and over!)
A FORTRESS-like wall, like the one the Israelis have built, might go a long way. Just be careful not to steal Mexican land in the process, the way the Israelis have stolen Palestinian land via the Wall.
El-Erian sounds smart to me. Much of what he offers might not be immediately "action-able." His predictions and characterizations might not be immediately useful to day-traders. He is certainly correct to whatever extent he points out just how screwed up and disunited the West has become. Perhaps he'd see things differently if the Repugnant Party Insurgency did not wield such outsized control. ... And then you also have the EU, which has been so earnest about including anyone and everyone, they let Hungary in--- with its Putin-esque "leader," Orban. Croatia was lately admitted. Ukraine, soon. I support the Ukrainians vs. the Russians, but Ukraine was and is a corrupt mess, still. Montenegro is on the list. Beware! Beware!
@Crash said, ”The world is indeed coming slowly... slowly... ever-so-slowly, unglued.” Can’t argue with you there. I might even omit “slowly.” And thanks @Crash for posting this in OT.
Viewing all the global strife, war, social & geopolitical conflict is like watching a huge traffic collision in slow motion with pieces of wreckage and human detritus flying in every direction. But I don’t think anyone can comprehend all the causes or know where this ends up. History is littered with such carnage. Perhaps it’s the technical sophistication that has grown, making every attempt by mankind at mass carnage or extinction appear more and more likely to succeed.
Grass - By Carl Sandburg
Pile the bodies high at Austerlitz and Waterloo. Shovel them under and let me work— I am the grass; I cover all.
And pile them high at Gettysburg And pile them high at Ypres and Verdun. Shovel them under and let me work. Two years, ten years, and passengers ask the conductor: What place is this? Where are we now?
@hank : Can you tell me how his 3000 contracts work ? From when he bought, rates were moving up, but now on the down slide. Does Mr. Gross collect every 3 months as long as the rate he bought at stays lower than current rate ? Thanks, Derf
”Gross, via a spokesperson, confirmed he bought 3,000 three-month March 2025 contracts tied to the Secured Overnight Financing Rate. Following gains on Friday, the wager, which is still active, has likely netted a more than $5 million profit, according to Bloomberg calculations.”
@Derf - I’d guess what Gross did with very short dated notes is similar to how shorting a stock works. You short a stock (by borrowing it) when you expect the price to be lower in the future. You sell the borrowed stock right away. After the price has fallen, you “pay back” the borrowed stock. Since the price has fallen, it costs you less to repay the stock.
Gross appears to have “shorted” the Fed overnight lending rate by buying the notes. Think of the notes as debt obligations on Gross’s part and a promise to repay them no later than March 2025. They are becoming less expensive to buy every day in the open market as rates fall. (Unlike bonds which rise in value as rates fall). The reason is probably related to their being based on the Fed “overnight” (ultra short term) lending rate. If rates keep falling, Gross’s investment will continue to make money for him. He’s free to exit the position whenever he wants. But apparently, March 2025 is the date he will have to pay off the debt obligations.
To your question, they will continue rising in market value as long as the overnight lending rate keeps falling. Gross needs to make a calculation how far he wants to push his luck before selling the notes. Should interest rates reverse (head higher) the notes will begin to lose value. Unlike shorting a stock which can go on into infinity, the Treasury notes will need to be liquidated by their expiration date in 2025.
These schemes work best for investors with mega-bucks to invest, as it’s the scale of the investment that makes them profitable. Indeed, hedge funds have been borrowing money (often from investment banks) to wager billions on similar bets on longer dated bonds and have raised fears of a future liquidity crisis among regulators should their highly leveraged bets go sour.
@hank noted: "These schemes work best for investors with mega-bucks to invest, as it’s the scale of the investment that makes them profitable. Indeed, hedge funds have been borrowing money (often from investment banks) to wager billions on similar bets on longer departed bonds and have raised fears of a future liquidity crisis among regulators should their highly leveraged bets go wrong."
Not to worry, the American taxpayer will be called upon to bail them out if they're wrong. It's good to have the most money to begin with.
Re-reading El-Erian. TWO (2) current BIG items he spends a lot of space explaining: 1) The way Russia has been able to maneuver around Western sanctions due to the invasion of Ukraine. 2) Continued, unlimited aid to Israel, even after we all can see how far Israel has taken the conflict with Hamas; it doesn't appear at all anymore to be a war on Hamas. Gaza is a pile of dust now, and casualties are appallingly atrocious. "As the humanitarian crisis in Gaza continues to escalate, several countries have expressed concern that the US, by failing to restrain its closest ally, is inadvertently enabling it. " (A rather mild way of putting it.)
He uses the word hollow re: US support for civil rights, human rights. No wonder, then, about the fragmentation he describes.
Some of these issues are not clear-cut. Some have little to do with global economics. Were El-Erian principled enough and succinct enough to acknowledge that he might deserve a better hearing. But presenting them in the context of global economics is intellectually dishonest.
Some of these issues are highly contentious here at home and steeped in controversy. I probably sympathize with you on some points. But it’s an area I for one don’t wish to tread. Since this is the OT board people are free to discuss the piece, including both the economic and non-economic issues.
Comments
Maybe just me. But I don’t understand El-Erian’s charm or appeal to many. He seems to command a lot of attention from media sources, but I’ve learned little from him over the years. Has a demeanor like a wet rag. Generally pessimistic. There’s a lot of perspectives from which to view the “Western-led global economic order” - I suppose. As for the U.S., record high equity markets, record low unemployment and a falling inflation rate aren’t exactly negatives. Go back and look at his advice all the way back to mid 2020. You’d have missed out on most of the huge market gains since than. And, yup, you’d have had an easier ride in ‘22. But all in all, you’d be behind the investing curve.
Here’s a prominent headline from late November 2022 - “Top economist Mohamed El-Erian says we’re not just headed for another recession, but a ‘profound economic and financial shift’ ” Gee. What great timing! Aren’t you glad you unloaded all your equity holdings in late ‘22? Hunkered down for that recession?
In El-Erian’s article there are many unsettling political undertones. There’s a political agenda in there somewhere and an abundance of negative aspersions. But he’s careful not to be very direct or “cross the line.” Hell, I don’t know if he’s right or wrong. But I do know the piece goes far beyond his supposed expertise in finance. Gross couldn’t stand him. Distrusted him. I suppose we might say they deserved one another. However, you’d probably have made more money from following Gross’s advice * than El-Erian’s.
-
* Gross placed the wager, which he announced, as he often does, on X, in a somewhat obscure corner of the market. It involved loading up on short-dated interest-rate futures that closely track expectations for the Federal Reserve’s policy path .., Gross, via a spokesperson, confirmed he bought 3,000 three-month March 2025 contracts tied to the Secured Overnight Financing Rate. Following gains on Friday, the wager, which is still active, has likely netted a more than $5 million profit, according to Bloomberg calculations.” (from December 1, 2023)
The world is indeed coming slowly... slowly... ever-so-slowly, unglued. The Independence movements around the world since the 1960s left many countries without membership in the old "Colonial Club," so they were not "under the thumb" of the Brits or French or Americans. But many of those aspiring newly independent countries in MANY areas around the world have sadly become s-hole countries. The Rule of Law is CONSTANTLY a victim in the fights over elections and nepotism and internal strife and civil wars. While people starve.
The global south and the other "have-Nots" are jealous. But that's no surprise, and not a legitimate basis upon which to formulate effective policies on the part of the "Haves."
Think of it: drug cartels and STREET GANGS actually IN CHARGE in those countries to our South. Even if we implemented ANOTHER Marshall Plan, it could only accomplish so much; what needs to happen is for those countries to reclaim their own political, sovereign integrity; create a tax system and ENFORCE collections; real elections where the votes actually get ACCURATELY counted. Erase the corruption in government. (Marcos family, over and over and over!)
A FORTRESS-like wall, like the one the Israelis have built, might go a long way. Just be careful not to steal Mexican land in the process, the way the Israelis have stolen Palestinian land via the Wall.
El-Erian sounds smart to me. Much of what he offers might not be immediately "action-able." His predictions and characterizations might not be immediately useful to day-traders. He is certainly correct to whatever extent he points out just how screwed up and disunited the West has become. Perhaps he'd see things differently if the Repugnant Party Insurgency did not wield such outsized control. ... And then you also have the EU, which has been so earnest about including anyone and everyone, they let Hungary in--- with its Putin-esque "leader," Orban. Croatia was lately admitted. Ukraine, soon. I support the Ukrainians vs. the Russians, but Ukraine was and is a corrupt mess, still. Montenegro is on the list. Beware! Beware!
Can’t argue with you there. I might even omit “slowly.” And thanks @Crash for posting this in OT.
Viewing all the global strife, war, social & geopolitical conflict is like watching a huge traffic collision in slow motion with pieces of wreckage and human detritus flying in every direction. But I don’t think anyone can comprehend all the causes or know where this ends up. History is littered with such carnage. Perhaps it’s the technical sophistication that has grown, making every attempt by mankind at mass carnage or extinction appear more and more likely to succeed.
Grass - By Carl Sandburg
Pile the bodies high at Austerlitz and Waterloo.
Shovel them under and let me work—
I am the grass; I cover all.
And pile them high at Gettysburg
And pile them high at Ypres and Verdun.
Shovel them under and let me work.
Two years, ten years, and passengers ask the conductor:
What place is this?
Where are we now?
I am the grass.
Let me work.
Thanks, Derf
@Derf - I’d guess what Gross did with very short dated notes is similar to how shorting a stock works. You short a stock (by borrowing it) when you expect the price to be lower in the future. You sell the borrowed stock right away. After the price has fallen, you “pay back” the borrowed stock. Since the price has fallen, it costs you less to repay the stock.
Gross appears to have “shorted” the Fed overnight lending rate by buying the notes. Think of the notes as debt obligations on Gross’s part and a promise to repay them no later than March 2025. They are becoming less expensive to buy every day in the open market as rates fall. (Unlike bonds which rise in value as rates fall). The reason is probably related to their being based on the Fed “overnight” (ultra short term) lending rate. If rates keep falling, Gross’s investment will continue to make money for him. He’s free to exit the position whenever he wants. But apparently, March 2025 is the date he will have to pay off the debt obligations.
To your question, they will continue rising in market value as long as the overnight lending rate keeps falling. Gross needs to make a calculation how far he wants to push his luck before selling the notes. Should interest rates reverse (head higher) the notes will begin to lose value. Unlike shorting a stock which can go on into infinity, the Treasury notes will need to be liquidated by their expiration date in 2025.
These schemes work best for investors with mega-bucks to invest, as it’s the scale of the investment that makes them profitable. Indeed, hedge funds have been borrowing money (often from investment banks) to wager billions on similar bets on longer dated bonds and have raised fears of a future liquidity crisis among regulators should their highly leveraged bets go sour.
Not to worry, the American taxpayer will be called upon to bail them out if they're wrong. It's good to have the most money to begin with.
Re-reading El-Erian.
TWO (2) current BIG items he spends a lot of space explaining:
1) The way Russia has been able to maneuver around Western sanctions due to the invasion of Ukraine.
2) Continued, unlimited aid to Israel, even after we all can see how far Israel has taken the conflict with Hamas; it doesn't appear at all anymore to be a war on Hamas. Gaza is a pile of dust now, and casualties are appallingly atrocious.
"As the humanitarian crisis in Gaza continues to escalate, several countries have expressed concern that the US, by failing to restrain its closest ally, is inadvertently enabling it. " (A rather mild way of putting it.)
He uses the word hollow re: US support for civil rights, human rights. No wonder, then, about the fragmentation he describes.
Some of these issues are highly contentious here at home and steeped in controversy. I probably sympathize with you on some points. But it’s an area I for one don’t wish to tread. Since this is the OT board people are free to discuss the piece, including both the economic and non-economic issues.
I appreciate the way you put that.