Bloomberg News

Pimco Predicts ‘Risk Off’ in First Part of 2012: Tom Keene

December 20, 2011

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Dec. 19 (Bloomberg) -- The first part of 2012 will be “risk off” as Europe’s sovereign-debt crisis encourages demand for safety, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co.

“The ECB has made it very clear that it doesn’t believe in the bazooka,” El Erian said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “It believes in the national governments’ and other institutions’ getting their acts together first.”

European Central Bank President Mario Draghi damped speculation among some investors that policy makers will step up bond purchases to tame rising borrowing costs, telling the Financial Times in an interview published today that the bank can’t overstep its mandate.

The euro fell 0.2 percent to $1.3016 at 2:47 p.m. New York time. The 17-nation currency touched $1.2946 on Dec. 14, the lowest level since Jan. 11.

Euro-area governments met a target for boosting their Anti-crisis war chest with a pledge to provide 150 billion euros ($195 billion) to the International Monetary Fund.

Four non-euro users -- the Czech Republic, Denmark, Poland and Sweden -- will also pitch in, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement after chairing a teleconference of finance ministers today. Britain will “define its contribution” in early 2012, according to the statement.

‘Being Challenged’

“The only argument for the IMF there is that it can impose conditionality that Europe cannot impose on itself,” said El-Erian, 53, whose company, based in Newport Beach, California, runs the world’s biggest bond fund. “Europe is being challenged on the economic front, the political front and on the social front.”

Fitch Ratings lowered France’s credit outlook and also put other euro-area nations on review Dec. 16, saying an overall crisis solution may be “technically and politically beyond reach.” Belgium’s rating was cut two levels to Aa3 by Moody’s Investors Service on the same day.

Next year will be characterized by de-levering, de-globalization and policy inconsistencies, El Erian said. “The second phase of 2012 is yet to be determined. The system is being de-risked, and therefore the system as a whole is de-levering.”

--Editors: Dennis Fitzgerald, Paul Cox

To contact the reporters on this story: Susanne Walker in New York at; Tom Keene in New York at

To contact the editor responsible for this story: Dave Liedtka at

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