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Mohamed El-Erian is a pretty smart guy, and his latest discussion is worth a read, although it is a bit short on specifics:

Usually I throw something like this out on the boards with a few quick comments and then Leo, Carp and Ed gently explain the article and where I have misunderstood it.

It is my hope that this process will occur here as well, although those guys may be getting wise to this technique. Also, I am troubled by Ed’s recent absence from the boards, and fear he may not chip in here. (I truly hope his absence is only temporary!)

Just in case the normal process does not occur, I took a page from PIMCO and convened a meeting of my entire investment team (4 daughters, one son (whose driving privileges were only recently reinstated), and me) to try to lay out a basis for our investing behavior going forward.

We all agreed that our main takeaways from El-Erian's piece are (i) we are on a bumpy road to a new normal (whatever that means, but we will now start using that phrase a lot to impress our friends); (ii) everything is sort of up in the air, so old strategies must be reconsidered, and (iii) we should invest all of our money with PIMCO because they are smarter than we are.

I harbor a vague suspicion that the article was drafted with at least a passing thought toward producing this exact reaction.

Splitting the difference between how we felt before reading the article and after reading the article, we are establishing tiny initial positions in PIMCO’s all-asset all-authority fund – PAUDX – and in PIMCO Unconstrained Bond Fund – HAUPX.

Otherwise, unshaken and unbowed (i.e., stubborn and uneducable), we are staying our original course with our remaining assets:

(1) 50% cash for the nonce (nonce, nonce, nonce . . . . I love that word);

(2) 10% MF Pro;

(3) 40% (mostly cash at the moment) being employed in the Pro–motivated BITB Stock Rejection Machine – see – as modified by the Go Broke More Slowly Plan – see .

Our guiding principles are:

(a) Jeff’s – preserve capital and make what you need for a good life, using high accuracy balanced techniques;

(b) Grantham’s – cash, some blue chips, a bit of emerging markets, and a lot of stuff in the ground, hopefully after a dip – no small caps for now;

(c) Gross/El-Erian – diversify across asset classes internationally and with an eye to the new normal; but

(d) MF GG (Tim, Nathan and Nate) – do the international part of that diversifying intelligently, with a strong core of developed market multinationals;

(e) Jim G., Sir John Templeton, and MF HG (Seth, Andy) – when the time is right, put a decent amount in a large, well-vetted basket of small cap value plays; and

(f) BITB: On the “if you can’t fix it, feature it” principle, we will be incredibly stubborn (we can do this because we are West Virginian and it comes naturally to us); we will not spend a dollar unless we have thought it through and the investment meets our criteria. You say “inflation?” I say “Psshaw” – in fact, I say “Nonce!” We will invest, but we are not the slightest bit afraid of cash.

OK, I really have to get back to doing more physics for a while. My kids will be monitoring the boards, but please try to keep all the Bob’s out of trouble while I am gone. Of course, all the above is "IMHO."


who has left strict instructions with his children that he be notified if/when Ed returns . . . .
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