Anyone waiting for the global economy to return to the comforting and more predictable patterns of years past could be in for a long wait, according to Dr. Mohamed A. El-Erian, chief economic adviser at Allianz, the parent of PIMCO—where he served as CEO and co-CIO—who spoke to a rapt audience of USC Marshall School of Business students and faculty on Thursday, Nov. 20 at the Galen Center Founder’s Room.
“We are honored to have Mohamed El-Erian join a long list of legendary investors such as Warren Buffett, Charlie Munger, Jeffrey Gundlach and Howard Marks who have presented to the USC Center for Investment Studies,” said Larry Tashjian MBA ’76, president and CEO of CAM Capital Advisors, and founder and chairman of the board of advisers of the Center for Investment Studies. “His ‘new normal’ paraphrase has become an enduring hallmark of his early predictions that the current economic recovery in the United States will be anything but normal.”
In his lecture, El-Erian advised students to develop “resilience and agility” if they are to navigate well an “unusually uncertain” outlook for the global economy.
While in the past major industrial economies at the core of the world economy traditionally operated in a cyclical space, they no longer operate that way, according to El-Erian.
“Usually you pull a rubber band and it snaps back,” he said. “Now the rubber band doesn’t snap back.”
El-Erian argued that, more than ever, advanced countries face a “bimodal” distribution of outcomes. On the one hand, there is the risk of even more mediocre growth and financial instability as a result of international fragmentation, national political gridlock and worsening opportunities for the middle class and youth. On the other hand, the beneficial impact of policy reforms, turbo-charged by the deployment of cash sitting on the sidelines and of meaningful innovations, could be felt in an “economic liftoff.” In preparing for the rather evenly split outlook, he offered examples from the airline industry, high technology and boxing to illustrate the importance of being flexible and nimble.
“Unless you’re willing to think differently,” he said, “you will continue to be surprised by the world we live in. Economics, geo-politics, markets and policies are all so fluid and so unusual that surprises will continue going forward.”
El-Erian first joined PIMCO, one of the world’s largest investment management companies in the world with nearly $2 trillion in assets, in 1999 as a senior member of the portfolio management and investment strategy group. Previously affiliated with Salomon Smith Barney/Citigroup in London and the International Monetary Fund in Washington, D.C., he has published on international economic and finance topics. His book, When Markets Collide, won the Financial Times/Goldman Sachs 2008 Business Book of the Year and was named a book of the year by The Economist and one of the best business books of all time by the Independent (UK). El-Erian was named to Foreign Policy’s list of “Top 100 Global Thinkers” for 2009, 2010, 2011 and 2012. He chairs President Obama’s Global Development Council.
The Center for Investment Studies promotes teaching and research in the area of investment management. Created in 2002, it seeks to promote financial education and to combine the knowledge of academics and practitioners to enhance the educational experience for students and alumni.