A near-term recovery of the global economy was given no better than 50/50 odds by Mohamed El-Erian, CEO and co-chief investment officer of Pacific Investment Management Co. LLC during a packed session of the Milken Institute Global Conference.
Mr. El-Erian's wager on the outcome for the world economy was on the optimistic end of the spectrum among the 620 speakers featured in 140 panel discussions viewed by 3,900 attendees at the annual Milken conference April 28-May 1 in Beverly Hills, Calif.
Blame for global economic woes was placed squarely on quantitative easing efforts by the U.S. Federal Reserve Bank and other central banks. “There are two policymakers — the Fed and Congress,” said Kenneth C. Griffin, founder and CEO of hedge fund manager Citadel LLC, Chicago. “The Fed is doing things to fix what Congress is doing. ... It is extremely difficult to navigate a market which is being dominated by political influence.”
Madelyn Antoncic, vice president and treasurer of The World Bank, Washington, said: “We don't have real fiscal policy ... the Fed is trying to do the fiscal side's work” rather than seeking to solve some of the structural problems of the U.S. economy.
Mr. Griffin said the real question is whether the Fed is “willing to continue to monetize the country's debt to hide politician's mistakes.”
There is a “ticking time bomb” in the U.S debt markets, noted Wilbur L. Ross Jr., chairman and CEO of WL Ross & Co., a subsidiary of Invesco Ltd., Atlanta.
“We are building a bigger time bomb” with $500 billion a year in debt coming due between 2018 and 2020, when they might not be able to be refinanced as easily as they are today, he said.
Mr. Ross said one-third of first-time issuers had CCC or lower credit ratings and more than 60% of the high-yield bonds were refinancings in 2012.
None of that capital was to be used for expansion or working capital, Mr. Ross said, just refinancing balance sheets. This means companies had no cash on hand to pay off old debt, he said.
“We are building a bigger time bomb” with $500 billion a year in debt coming due between 2018 and 2020, when the bonds might not be able to be refinanced as easily as they are today, Mr. Ross said.
The 10-year Treasuries are not even safe, Mr. Ross said, because if they revert to the average yield seen between 2000 and 2010, they will be down 23%.
“If there is so much downside risk in normal Treasuries,” what about high yield, he asked. “We may look back and say the real bubble is debt,” Mr. Ross said.