Salient to Investors:

Bill Gross at Pimco said:

  • The Fed will not taper with unemployment rising to 7.6 percent and very dire metrics for the average work week and wages, but a more normal economy requires the Fed to raise interest rates to more normal levels because QE and low interest rates are distorting capital markets.
  • Flat wages, a flat work week, and rising unemployment equates to GDP growth of 1 to 2 percent.
  • Employment problems are structural and due to globalization, demographics, and technology – the race against the machine.
  • Holdings of US government debt in the Pimco Total Return Fund were at 39 percent as of April 30, the highest level since July 2010.
  • There is too much leverage in the global economies and in the financial system and too little return. The last few months shows that once currency stability is destructive then the funding of traders are at risk. It has become more difficult for investors to exit trades, raising the risk of holding higher-risk assets.
  • Liquidity as measured by bid-to-ask spreads is widening and bids for debt are getting less and less – not a panic mode necessarily.

Mohamed El-Erian at Pimco said the jobs number is not strong enough to give the Fed assurances of the growth handoff that everybody wants, not weak enough for it to say it’s going to increase QE much – the fed will be frozen.

The median economist expects the Fed to trim QE to $65 billion a month at the late October FOMC meeting.

Average hourly earnings were up 2 percent in 12 months ended in May.

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