BEVERLY HILLS, Calif.--The global economy is headed for a period
of "divergence," in which strong nations and corporations perform
even better, while weaker ones fall further behind, two
high-profile investors predicted at a conference here on
Monday.
In a wide-ranging discussion at the Milken Institute Global
Conference, former Pacific Investment Management Co. Chief
Executive Mohamed El-Erian said: "We are approaching this
T-junction where this period of low growth is either going to hand
off to a true recovery...or it can hand off to something much
worse, which is not just low growth but financial instability."
Mr. El-Erian, who is now a senior economic adviser to Pimco's
parent company, German insurer Allianz SE, was interviewed by
Gerard Baker, the editor in chief of The Wall Street Journal. Also
on the panel was Kenneth Griffin, founder and CEO of investment
firm Citadel LLC.
Mr. Griffin posited that the effect of low GDP growth in some
developed nations could be offset by decreases in population,
softening the effect on individuals of sluggish overall growth.
"Per capita growth could be a very different story," Mr. Griffin
said.
Neither man was willing to predict when the Federal Reserve
might raise interest rates. "What the Fed would like is for the
Journal to stop writing stories about when the first rate hike will
happen," Mr. El-Erian quipped.
"Dream on," Mr. Baker joked back.
Looking abroad, both men called a Greek exit from the eurozone
likely, though they said the effect of such a move would depend on
whether it happened in a planned, orderly way, or more
haphazardly.
"I don't see this as a major disaster," Mr. El-Erian said,
referring to the possibility of Greece leaving the common European
currency. But "it will cause a shock."
Mr. Griffin added the bigger effect could be felt later if
another eurozone country such as Spain, Italy or Portugal hits
economic trouble and stirs speculation about a second nation
leaving the currency.
Messrs. El-Erian and Griffin praised the recently stepped-up
role of activist investors. "I am all in favor of liberalizing
access to boardrooms by activists," Mr. Griffin said, arguing it
improves corporate governance and transparency, ultimately lowering
the cost of capital.
Mr. El-Erian offered a more measured endorsement of the
phenomenon, which he called "not positive in every single case,"
but "an advantage that the U.S. has vis à vis the rest of the
world."
Mr. El-Erian, who is also chairman of President Barack Obama's
Global Development Council, at one point mused whether global
corporations" powerful two-decade run of profits and stock prices
has been a universal good. "Have we gone too far?" he asked,
referring to ballooning corporate profits. "You simply can't push
inequality too far."
In response, Mr. Baker jokingly chided Mr. El-Erian for being
"firmly in the Marxist-Leninist camp."
Write to Ethan Smith at ethan.smith@wsj.com
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