Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Jason Stipp | 11-10-2011 12:00 AM

Kashkari: U.S. in for Long, Hard Adjustment Period

U.S. investors must think globally to weather what will be a protracted deleveraging period here at home, says PIMCO's head of global equities Neel Kashkari.

Jason Stipp: I'm Jason Stipp for Morningstar. Neel Kashkari, head of global equities at PIMCO and a former assistant secretary of the Treasury, was at Morningstar today and gave a presentation on the current market and economic environment and what they're seeing for the future.

He's going to cover some of the highlights of that presentation with me today.

Thanks for joining me, Neel.

Neel Kashkari: Thanks for having me. It's great to be here.

Stipp: So, you had a, I would call it, a ringside seat for the financial crisis. You had a major role in helping to craft the response and manage the response to that crisis. Today at Morningstar, you said that the U.S. economy, you likened it to a patient that was saved from a heart attack, but is still on the gurney. When you pick up the medical chart for the U.S. economy right now, what do you see?

Kashkari: We see a long hard adjustment period. It is several more years of private sector deleveraging, consumers are paying down their debt, but they've got a long way to go. Corporations have largely paid down their debt, but the U.S. government is still ballooning their debt.

And so, this is debt-induced crisis, a debt-induced heart attack, and until we get to a more sustainable debt level, we're not going to see the U.S. economy growing at the kind of levels that we've been used to. So, it's a multi-year painful adjustment.

Stipp: So, given that we're still basically in the sick ward, what are some of the implications? What should we expect during this recovery period, while this deleveraging is going on?

Kashkari: So, low economic growth, low asset price returns than we have been used to, much lower. Stronger growth abroad in the emerging markets. We talk about at PIMCO a multispeed world, with the developed world growing very slowly, if at all, and the emerging markets growing more quickly. So, we think, for investors, you should be positioned globally to take advantage of what these growth dynamics are offering.

Stipp: So, I want to talk to you a bit about the growth. So we do see a lot of the fundamentals especially in the emerging markets are better than the U.S., but at the same time we also know that economics doesn't necessarily guarantee that you'll see those investment results--valuation is a big piece of it.

So, when you're looking at valuations overseas given that the fundamentals are stronger, is that priced in already or do we still expect to see that valuations have a lot of upside given that fundamental strength?

Read Full Transcript
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article