Market Overview

Trillion Dollar Asset Manager Says Get the Jelly, the World is Toast

PIMCO announced some not so bullish expectations for the Euro Area, China, and United States this morning, for 2012, all which were covered in real-time with Benzinga Professional.

CURRENT EVENTS

On Wednesday, Mario Draghi came out with positive news that just might comfort investors with European exposure.

According to the European Central Bank, investors have been found to help fund the European sovereign bailout. The support came from an extremely unlikely source: European financial institutions.

The package is not necessarily ideal for the ECB, who had to concede bargain rates to Euro banks in order to coax them for funding. On the other hand, the offer was good enough to garner nearly $500 billion from banks in relatively cheap three-year loans.

PIMCO COMMENTS

However, Pacific Investment Management Company - known as PIMCO - does not see the events overseas as much of a saving-grace.

PIMCO announced some of its global projections for 2012, today, most of which were not so bullish.

PIMCO'S TAKE ON EUROPE

The global asset management firm stated that the ECB must say that they are the "lender of last resort", to calm investors' nerves. PIMCO went on to say that the ECB will likely "leap to the rescue" too late.

Consensus seems as though the ECB acted in time to help the Euro Area banks. Analysts are relieved that the loans described above are three-year term loans instead of one-year, which could have put Europe in a "Lehman-like" situation.

Ultimately and in agreement with PIMCO's views, everyone has acknowledged that Europe will have to change its financial system on a fundamental basis, in order to revamp its economic health. Draghi has also made it clear that he's wary about emulating the US Federal Reserve by pursuing quantitative easing strategies.

PIMCO'S TAKE ON CHINA

PIMCO continued to say that it believes China will grow only at 7% in 2012, while most analysts believe China will likely slow, however, only to about 8.5% growth in 2012.

The world's largest bond investor does have a point. Chinese manufacturing slowed down in November, as China's official PMI – the index that tracks purchasing managers' activity in the manufacturing industry – slid to 49 from 50.4 in October. This means that it slipped from a level of mild growth to a contraction in the manufacturing sector.

PIMCO'S TAKE ON THE UNITED STATES

Finishing with the United States, PIMCO expects the U.S. to grow between 0 and 1% in 2012. This goes against the general consensus as Scotia Capital has U.S. GDP growth projected at 1.8%, Moody's Ratings Agency has GDP growth pegged at 2.6%, and Morgan Stanley anticipates growth at 2%, just to name a few.

Thursday morning saw investors searching through the GDP data for signs of an economic recovery, however, could not find much of one, as the final GDP revision of the year in the United States was revised down to 1.8% from 2.0%.

Although, initial jobless claims dropped 4,000 to 364,000 for the week of ended December 17 from a revised 368,000 in the previous week. The four-week moving average dropped by a full 8,000 to 380,250 from the revised average the week prior of 388,250.

With mixed economic data in the United States and uncertainty abroad, its really anyone's guess for the outlook for 2012. Why not trust what PIMCO has to say? They ONLY oversee $1 trillion dollars in global client assets.


ACTION ITEMS:

Bullish:
Traders who believe that PIMCO is not 100% accurate, and think the world is recovering faster than expected, you might want to consider the following trades:
  • Long industrial commodities like copper and crude oil. If China continues to grow more than expected, they will need these industrial commodities to build infrastructure, etc. Look at the Copper TR Sub-Idx ETN (NYSE: JJC) or United States Oil ETF (NYSE: USO).
  • Long Euro equities or the EUR/USD currency pair. If Europe fixes their problems, then equities across Europe and the Euro should strengthen. Look at the Vanguard MSCI Europe ETF (NYSE: VGK)
Bearish:
Traders who believe that PIMCO's thinking is correct and the world will slow more than expected, you may consider alternative positions:
  • Short industrial commodities like copper and crude oil. If China slows, so will its manufacturing and need for industrial commodities. Look at the Crude Oil Dble Short ETN (NYSE: DTO)
  • Short U.S. banks. If the problems continue domestically and abroad, contagion will likely spread throughout the global economy. Look at the Financial Bear 3X Shares (NYSE: FAZ)
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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