When Co-CIOs Disagree

Mohamed El-Erian and Bill Gross will, as of January, both hold the title of

chief investment officer at bond giant Pimco. Few firms have as much money as

Pimco tied up in short-term debt instruments like the ones issued by structured

investment vehicles, or SIVs. So what these men think about The Entity (no one’s

calling it a "superconduit" any more) is important. If only they thought

the same thing.

On October

15, Mohamed talked up The Entity, in the WSJ:

The coordinated effort is a good way to help restart stalled debt markets,

said Mohamed El-Erian, who runs Harvard University’s $35 billion endowment

and is set to become co-chief executive and co-chief investment officer of

money-management firm Pacific Investment Management Co. in January. "No

bank would do this on its own."

"The proposal has the potential to restore liquidity to a market,"

he added.

The following day, October 16,

Bill talked down The Entity, on CNBC:

There’s a lot of dead bodies off balance sheets that we still can’t find.

This SIV idea is a little lame, in my opinion. And let me twist an old phrase

and suggest that a SIV by any other name is still a SIV.

There are three possibilities here. The first is that market reaction to The

Entity (no one’s calling it a "superconduit" any more) was decidedly

negative after news of emerged over the weekend. If the market reaction had

been more positive, then it might indeed have been a Good Thing; but given that

the whole point of The Entity is to boost confidence and that nobody’s confidence

seems to have been boosted, it turns out in reality to be "a little lame".

So Mohamed’s quote was reasonable when he gave it, over the weekend, but by

now we’ve moved on to where Bill is at.

The second possibility is that Mohamed and Bill are pretty much on the same

page privately, but that they express their opinions in public in very different

ways. Mohamed, who spent decades in public service, feels more of a responsibility

to be constructive; Bill, who made his billions by being contrarian, is perfectly

happy to take pot-shots at Treasury from time to time.

The third possibility, of course, is that Mohamed and Bill really do disagree

on The Entity. Which would be fine: one can’t expect the two to always be on

the same page, although it’s mildly embarrassing for them to differ in public.

Presumably once Mohamed moves back to California, the Pimco PR machine will

do its best to ensure such things happen as infrequently as possible.

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