Thursday, 9 April 2009

El Erian plays long/short game

The FT has an interview with Mohamed El-Erian from PIMCO on the PPIP program and how PIMCO will participate.

He raises the interesting point that the recent changes to the M2M rules in the US may make banks even less willing to part with their "legacy" assets and therefore diminish the supply of product into the PPIP scheme. To that extent the taxpayers may breathe some sigh of relief that the massively unfavorable risk/reward ratio and funding asymmetry for the public sector which is proposed under the PPIP may not be that effective.

Amusingly at the end of the interview he is asked to play the Long/Short game with the interviewer in which he is given an asset class or company and asked to indicate whether he would be long or short - somewhat like a thumbs up or down game. Asked about the US dollar he would be short, and asked about gold he would be long. But very diplomatically when asked about both Citigroup and Bank of America he declared himself to be neutral.

No wonder PIMCO has such a fertile relationship with the US Treasury.

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