It has been a week since Bill Gross dropped a tape-bomb on the fixed-income market and walked away from the firm he founded decades ago. Since then the world and their pet rabbit have commented (most notably David Tepper’s “who cares?”); but one man has been markedly silent… until now. In an interview on Bloomberg TV, former PIMCO Co-CEO Mohamed Al-Erian told Betty Liu that Bill Gross’ “departure – the fact that it happened and how it happened – was a surprise.”
Brief interview here:
BETTY LIU: Well for more reaction on the jobs data I want to bring in Bloomberg View columnist and former PIMCO CEO, Mohamed El-Erian, who joins us a little jetlagged from London. Mohamed, great to see you this morning. Look, you went through the jobs report yourself. And how do you think the Fed is going to interpret this? Does this at all change Janet Yellen’s schedule on interest rates?
MOHAMED EL-ERIAN: I don’t think so. It is the mirror image of the report we talked about a month ago. This time around it is the headline numbers that are really encouraging. If you add the job creation plus the revisions you’re looking at almost 320,000 new jobs. That’s taken the three-month average to 224,000. That’s really good. And the unemployment rate is down.
But on the other hand, the internals this time around are less encouraging, particularly long-term unemployment stuck at three million, youth unemployment up to 20 percent, and of course the participation rate is coming down. So net-net this is a mixed report. And the most disappointing aspects, Betty, is one that you’ve been talking about for the last half hour, which is wage growth. Wage growth simply is not there yet.
LIU: It isn’t there yet. And do you have any further clarity or explanation as to why? With the labor market tightening we haven’t seen wage growth escape at all.
EL-ERIAN: I think this is a different economy. And I think people are starting to realize that this is a different economy. In addition, little steps that should be taken, the minimum wage, et cetera, are not being taken. And that’s part of a bigger problem that we don’t have a holistic policy response as yet because of the polarization of Congress.
LIU: And given that, we’ve seen, Mohamed, more market volatility, right? Do you expect that if we continue to get numbers like this where it kind of shows a mixed picture that this volatility is only going to increase?
EL-ERIAN: I think volatility will increase, Betty, but for a different reason. We are living in a world in which the main policymakers, the central banks, have gone from a multispeed world, where they were doing the same thing but at different speeds, to a multitrack world where they’re doing different things. And the result of that is that currencies are on the move. And when currencies move sharply they tend to transmit volatility to other markets. And that’s what I think we’re going to see more of looking forward.
LIU: And speaking about volatility, Mohamed, if I may change topics for a moment, of course we’ve seen a lot of volatility at your former firm, PIMCO. This is the first time, Mohamed, that you and I are speaking and you’re speaking anywhere really about PIMCO since Bill Gross left a few weeks ago. He started his job at Janus. Were you as shocked as everybody else with Bill Gross leaving PIMCO?
EL-ERIAN: Yes. I was very surprised, but what I wasn’t surprised about, Betty, is that they were able to draw on a very deep bench of talented people who have established track records, who have industry awards and who have been part of the process. They’ve been managing more than 80 percent of the assets at PIMCO.
So Bill’s departure, both the fact that it happened and how it happened was a surprise, but what wasn’t a surprise was the incredible bench and a very strong team led by Dan Ivacsyn. I’ve worked with these people. I know them really well. They are superb and Dan Ivacsyn is superb as a leader.