Fund Times: PIMCO's McCulley Sees Soft Landing for Economy

About halfway through his keynote speech at the 2006 Morningstar Investment Conference on June 29, PIMCO managing director Paul McCulley stopped to comment in real time as the Federal Reserve raised short-term interest rates by a quarter of a point to 5.25%.

McCulley said the Fed's statement accompanying the hike was "right on the cusp between dovish and hawkish," but that it was still consistent with the central bank's efforts to rein in the risk-taking that has run rampant in the U.S. markets since 2001. But McCulley said he expects a "global soft landing" as the rest of the world starts consuming more while America begins to consume less. This will affect the valuations of risky assets, he said. "Risk-taking is not going to be subsidized, and excessive risk-taking will be penalized," McCulley said.

International Managers Revel in a Flatter World
Despite an abrupt emerging-markets sell-off in recent weeks, three leading international fund managers at Morningstar's investment conference agreed that investment opportunities still exist in all corners of the world.

As developing economies become more important, they are becoming less dependent on the more mature countries than they previously were, the panelists said during a general session that asked, "Is the World Flat?"

"Even though China has a shaky economic system, they have more control over their destiny than previously thought," said Rob Lyon, manager of  ICAP International ICEUX.

The panel's enthusiasm for foreign companies seemed undimmed by the recent downturn. MFS International New Discovery MIDAX manager David Antonelli said his basic investing thesis remains the same. "You will be rewarded in a more handsome way in emerging markets," Antonelli said. "The key is to keep an eye on valuation."

Diana Standberg, a manager of  Dodge & Cox International Stock DODFX agreed, and said stewardship, not location, should guide investors. "When considering emerging markets, one of the things we ask ourselves is, 'For whose benefit is the company being run?'" she said.

Note: Recordings of each panel and keynote address at the 2006 Morningstar Investment Conference are now available.