The past 18 months have witnessed problems in U.S. subprime sector spill over into credit markets worldwide. From housing defaults in the U.S, we have seen the problem progress to where credit markets have essentially locked up and central banks are resorting to giving banks heavy incentives to lend money. Amid it all, two large financial institutions--Northern Rock in the UK and Bear Stearns in the US--have had to seek out rescues, one from the government, and one from the arms of a suitor prodded by the government. High street banks such as Royal Bank of Scotland, HSBC, and Barclays have been badly dented, as have American titans such as Merrill Lynch and Citigroup.
The coming damage was foretold at last year's Morningstar conferences in the U.S. and in London. In the U.S. in June, F
irst Pacific Advisor's Bob Rodriguez described the easy credit environment as a set-up for a catastrophe and noted his fund was more than 40% cash and free of high-yield debt given his concerns. He also made the point that he believed there was a risk of a contagion between the mortgage market and credit markets more generally--a point that many others missed. In London in September, Keith Anderson (then CIO of BlackRock) argued that the worst was yet to come, based in part on the fact that the amount of mortgage resets coming due in the U.S. were to increase substantially in 2008 and 2009.
At this year's Morningstar Investment Conference in London, Pimco's Jamil Baz will give his opinion of the outlook for fixed-income and the extent of the credit crisis. He should know. Pimco is one of the largest and best fixed-income managers in the world--CIO Bill Gross has won Morningstar's Fixed-Interest Manager of the Year award in the U.S. an unprecedented three times--and as such is in an exceptionally strong position to assess information across markets. Baz's personal experience also gives him a perspective that few can match. He was formerly a managing director in macro proprietary trading at Goldman Sachs in London, and before that he was the global chief investment strategist for Deutsche Bank. We can't pretend to know what will happen in credit markets going forward, but we expect that Baz will leave us with rich food for thought.
Baz's presentation will run from 11:30 - 12:30 on 21 May at the Morningstar Investment Conference at the Hilton Metropole in London. Please click here to learn more.
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