This year’s market gains will need more than an improving economic picture and investor willingness to shrug off the European debt crisis, Pimco’s Mohamed El-Erian said.

“It’s too early to declare victory,” the co-CEO for the world’s largest bond fund told CNBC in an interview Tuesday.

He outlined three issues that must be addressed if the 2012 rally is to continue:

1) Geopolitical risk that remains both in Europe and the Middle East.

2) A “handoff to more sustainable policies” beyond the monetary easing from the world’s central banks.

3) Getting “long-term investors” off the sidelines and putting their money to work in riskier assets than bonds.

As those headwinds remain, El-Erian advises investors to dedicate a smaller portion of their portfolios to stocks and a larger allocation toward precious metals. On bonds, he advocates shorter duration, with a target of seven years or less, which is where the Federal Reserve has focused its debt-buying efforts.

“They’re both willing and able,” El-Erian said of the Fed and other central banks and aggressive monetary policies. “The issue is the effectiveness. Even the central bankers are beginning to announce that it is not just bout the effects, it’s about the costs and risks.”

“The central banks are absolutely committed, but we must not extrapolate that they will remain highly effective,” he continued. “They need help. They are a bridge and they have to be a bridge to somewhere. So far the other government agencies are on the sidelines.”

An unexpected surge in job creation for the US will help investors sentiment, he said.

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See Also:

• S&P Sounds Alarm On US, G20 Downgrades
• The Stock Market Is Overvalued Between 33% And 44%
• JOHN BROWNE: Stocks Are Up 22% From October, But Is This A Bona-Fide Bull Market?

This year’s market gains will need more than an improving economic picture and investor willingness to shrug off the European debt crisis, Pimco’s Mohamed El-Erian said.

“It’s too early to declare victory,” the co-CEO for the world’s largest bond fund told CNBC in an interview Tuesday.

He outlined three issues that must be addressed if the 2012 rally is to continue:

1) Geopolitical risk that remains both in Europe and the Middle East.

2) A “handoff to more sustainable policies” beyond the monetary easing from the world’s central banks.

3) Getting “long-term investors” off the sidelines and putting their money to work in riskier assets than bonds.

As those headwinds remain, El-Erian advises investors to dedicate a smaller portion of their portfolios to stocks and a larger allocation toward precious metals. On bonds, he advocates shorter duration, with a target of seven years or less, which is where the Federal Reserve has focused its debt-buying efforts.

“They’re both willing and able,” El-Erian said of the Fed and other central banks and aggressive monetary policies. “The issue is the effectiveness. Even the central bankers are beginning to announce that it is not just bout the effects, it’s about the costs and risks.”

“The central banks are absolutely committed, but we must not extrapolate that they will remain highly effective,” he continued. “They need help. They are a bridge and they have to be a bridge to somewhere. So far the other government agencies are on the sidelines.”

An unexpected surge in job creation for the US will help investors sentiment, he said.

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See Also:

• The Stock Market Is Overvalued Between 33% And 44%
• JOHN BROWNE: Stocks Are Up 22% From October, But Is This A Bona-Fide Bull Market?
• Germany’s DAX Is On Pace For A 143% Return In 2012…

Once again, stocks are going nowhere.

It looked like we might get a little bit of selling earlier in the day, but now the S&P is up less than 2 points.

Snoozefest.

We haven’t had a 1%+ down day since last December.

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• At The Last Moment Greece Seems To Have Canceled Its Own Deadline For Austerity Negotiations
• Raymond James Pulls The Plug On The Great ‘Hope Trade’ Of 2012
• Since The S&P Downgrade…

Once again, stocks are going nowhere.

It looked like we might get a little bit of selling earlier in the day, but now the S&P is up less than 2 points.

Snoozefest.

We haven’t had a 1%+ down day since last December.

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See Also:

• Since The S&P Downgrade…
• At The Last Moment Greece Seems To Have Canceled Its Own Deadline For Austerity Negotiations
• A Jobs Day Stat We Hadn’t Heard Before

The euro shot to a new high for the year, hitting $1.325 a few hours into U.S. trading.

This euro strength could be catalyzed by reports from Greece that politicians have reached an agreement on harsh new austerity measures that are required for disbursement of the second bailout leaders agreed to in August.

The terms of this aid could also include more funding than the €130 billion ($170 billion) Greece was expected to receive after meetings in August.

Meanwhile, talks continue between representatives of bondholders and government officials on the terms of a hotly debated bond swap. While we’ve heard lots of rumors that these negotiations were also drawing to a close, they are somewhat less believable since we’ve been hearing the same murmurs for more than a month.

Check out the euro versus the dollar:

Follow our live coverage of Greece’s crisis negotiations here >

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• LIVE: Negotiations And Crisis In Greece
• Pressures Mount On Greece: Here’s What’s Ahead Tomorrow
• European Stocks, US Futures Fall As Greek Debt Negotiations Stall

Kyrgyzstan’s largest gold mine stopped production on Tuesday after 1,400 workers went on strike, Radio Free Europe/Radio Liberty (RFE/RL) reports.

Strikers at the Kumtor mine are demanding an increase in contributions to the state social-security fund for 1993-2010 by Centerra Gold Incorporated, the Canadian company that operates the mine, head of the miners’ labor union committee for rights, Eldar Tajybaev, told RFE/RL.

The trade union also wants Centerra to pay the mandatory employee contribution to the Kyrgyz Republic social fund in addition to the mandatory employer contribution, Market Watch reports. But recent changes to the law mean that social fund contributions must be deducted from wages.

So the company claims the strike is illegal, as the collective agreement expires on December 31, 2012. It is in discussions with the union to resolve the strike.

According to Centerra spokesman Sergei Dedyukhin, the dispute was sparked by a request last year by the fund to increase contributions, since the fund says contributions by the workers in mountainous areas (Kumtor is 13,123 feet above sea level) should be higher because their salaries are higher. 

Centerra Gold had agreed to pay the workers’ extra contributions for 2010 and 2011, but it was decided that as of 2012, the part paid by workers had to be increased as well, something the workers did not agree with.

Kumtor, which accounts for roughly 15 percent of the Kyrgyz economy, is located near the border with western China and has been involved in numerous labor and environmental issues, which means this latest strike is a great source of worry for the country, Orozbek Duysheev, the president of Mining Companies Association and chairman of Public Watch Committee at the Geology and Mineral Resources State Agency, told the Kyrgz news agency 24.

“Who will invest to Kyrgyzstan when they see all these strikes or endless protests against mining companies? I guess, there won’t be any ‘volunteer’ who would invest money,” he said, saying the government needed to intervene in the ongoing dispute.

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Earnings season is well under way, and 54 percent of companies in the S&P 500 have reported earnings so far. Of these, 61 percent have reported better than expected earnings, while 28 percent reported a negative surprise, and 11 percent reported earnings in line with expectations.

With 47 percent of the S&P 1500 reporting earnings between February 7 and March 19, Citi analysts Keith Miller, Hong Li and Peter Lo put together a list of companies that are projected to have positive and negative earnings surprises in the coming weeks.

First the list of companies with a market cap of $1 billion or more, that are expected to have a positive earnings surprise:

Now here are Citi’s negative earnings surprise candidates with a market cap of $1 billion and over:

Don’t Miss: What Big Companies Are Telling Us About The World Economy >

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WASHINGTON (AP) — The number of available jobs in the United States jumped in December to near a three-year high, supporting other data that show a brighter outlook for hiring.

The Labor Department says companies and governments posted 3.38 million jobs in December. That’s up from the 3.12 million advertised in the previous month and nearly matches the three-year high reached in September.

The report on job openings follows Friday’s optimistic employment figures. Those showed employers added 243,000 net jobs in January, and the unemployment rate fell to 8.3 percent.

Even with the gains, 13.1 million people were unemployed in December. That means an average of 3.9 people competed for each open job that month, the first time in four years that ratio was below 4 to 1.

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• Apple Might Lose A $1.6 Billion Lawsuit For Using The Word ‘iPad’
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• Paul Krugman Makes The Bull Case For The Economy In One Simple Paragraph

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

The following interview with Neel Kashkari, Charles Lahr and Anne Gudefin of PIMCO appeared in the January 31, 2012 issue of Value Investor Insight, a monthly newsletter for investment professionals that spotlights through in-depth interviews the strategies and current ideas of the most-successful investors in the business – which in past issues have included Seth Klarman, Bill Ackman, Mason Hawkins, Jeremy Grantham, Marty Whitman and many, many others. To receive the entire January 31 issue and one other as part of a no-obligation free trial subscription, please visit http://www.valueinvestorinsight.com/freetrial.

Bond titan PIMCO has been methodically building its equity-investing expertise. Here the architect of that effort and his first major hires describe their strategy and where it’s uncovering value in today’s market.

Known for its global prowess as a fixed-income investor, giant money manager PIMCO decided three years ago to build an active equity management business from scratch. To head the effort it hired former Goldman Sachs investment banker Neel Kashkari, who also ran the U.S. Treasury’s Troubled Assets Relief Program (TARP). The firm next lured Anne Gudefin and Charles Lahr from FranklinTempleton’s highly successful Mutual Global Discovery Fund to create a deep-value equity strategy for PIMCO, which has thus far attracted more than $3.5 billion in assets. We spoke recently with Kashkari, Gudefin and Lahr about the strategy behind the firm’s foray into equities, how they’re executing it, and where they are – and aren’t – finding opportunity in today’s market.

Why after all these years did PIMCO decide it wanted to be an active-equity money manager?

Neel Kashkari: There were three main reasons. The first was that coming out of the financial crisis, it became clear to us and to our clients that traditional narrow-style-box investing wasn’t enough, and that in order for us to be a full solutions provider to our clients we couldn’t just be in fixed income alone. Number two, we believed there were certain active strategies using bottom-up research as a base that could perform even better when combined with the global economic, currency, hedging and cash management expertise that already existed at PIMCO. Finally, post-crisis we were in a strong position to recruit the best equity talent in the industry, and if we were careful about ensuring a cultural fit, they would bring additional expertise to the firm’s overall investment process. One pleasant surprise has been how easy it’s been to get the best talent on the phone to talk about the opportunity to work here.

You decided to grow organically rather than by acquisition. Why?

NK: We thought that was the best way to maintain quality and to protect PIMCO’s very strong investment culture. There’s an acute focus on performance, a deep intellectual curiosity for investing and a collaborative team-based orientation. Making a large acquisition could make us big in equities overnight, but along with all the people who fit perfectly into the culture would be a lot of people who didn’t. We’d rather cherry-pick the right ones and build from there.

It plays to your strengths, but are there other reasons for pursuing only equity strategies that are global?

NK:  It does play to our strengths, but we also believe the world is moving away from narrow style boxes and that the best way to serve clients is by giving the very best investment talent the flexibility to invest across capitalization sizes, geographies and security types – forget about benchmarks, just build the best portfolio you possibly can. The fact that the style boxes of yesterday performed so poorly during the financial crisis is further justification for this strategy.

Charles and Anne, how tangibly has being a part of PIMCO been of benefit?

Charles Lahr: Probably most important, given the way Anne and I invest, is tapping into the expertise here to help us avoid false positives that come out of our bottom-up approach. The best example of that was 12 months ago when a number of banks in countries like Spain, Italy, Ireland, Portugal and even Greece were flashing all of the traditional bottom-up, deep-value signals. As we all know now, of course, there was something much more sinister at play, a sovereign debt crisis which PIMCO had already been digging into for more than two years.

I don’t know if we’d have taken the plunge had we not been here, but it certainly helped us avoid the sector entirely. I would add to that by saying we have no exposure today to any large-cap continental-European banks, or to any peripheral-country European equities at all, in any industry.
 
More generally, the ability to tap into the depth and quality of the credit research in-house has been quite beneficial. Many successful equity investors take a relatively human-capital-lite approach, with small teams covering the world and looking for the best ideas. It’s inevitable that opportunities will slip by you. At PIMCO there are more than 70 different credit analysts covering just about every credit on the planet and producing research that very often has a valuable read across to the equity. That includes being on top of specific financing events that may be debt-negative, equity-positive, or vice versa. All of that is a very rich source of ideas and fundamental insight into companies.

NK:  All of our strategies at some level are anchored in value, so our fixed-income managers also benefit from the analysis Anne and Chuck produce, which is fundamentally rigorous and heavily valuation oriented. It’s not a coincidence Anne and Chuck were the first people we hired – they think a lot like bond people.

Has your core investing strategy evolved at all since joining PIMCO?

Anne Gudefin: The basic strategy of investing in equities with a long-term, deep-value bias and supplementing returns with merger arbitrage and distressed debt has not changed at all. It’s a flexible approach, using different methods to value companies. Chuck may focus on returns on equity in the case of financial companies, while I may focus more on high free cash flow yields to help identify value in consumer-oriented stocks.
 
We have always taken a global approach, but have historically found more value in European markets than elsewhere. You can argue for hours and hours why that tends to happen – the markets are less liquid, investors are less sophisticated, investors are more momentum-oriented – but our largest portfolio share is typically European. We have about 45% of the portfolio there today, with roughly one-third in the U.S. The next biggest exposure is in cash, at about 10% of the portfolio.

Read the rest of the interview on Advisor Perspectives >

This post originally appeared on Advisor Perspectives.

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• Apple Might Lose A $1.6 Billion Lawsuit For Using The Word ‘iPad’
• A Huge New Call On Housing That You Must Pay Attention To
• Paul Krugman Makes The Bull Case For The Economy In One Simple Paragraph

Last year the stock market was flat, but tons of hedge fund managers got creamed, as many traditional strategies totally failed.

And the reason those strategies failed is that the correlation between various asset classes had risen to all-time highs, and when everything is moving the exact same way, it doesn’t matter how good you are at selecting stocks, or deciding between asset classes. It’s very frustrating.

Yesterday’s Chart Of The Day looked at the big drop in correlations so far in 2012, but this chart from Nomura (via @dutch_book) is even more remarkable.

We’ve instantly gone from one of the highest-ever correlation environments to one of the lowest.

This signals a big break in the level of market panic, and it also means the market could theoretically present lots of big, fat juicy pitches for investors to swing at (they still have to hit the ball, of course).

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See Also:

• CHART OF THE DAY: A Major Shift In The Stock Market That Everyone Is Cheering About
• Raymond James Pulls The Plug On The Great ‘Hope Trade’ Of 2012
• Asian Stocks Are Mixed As Greek Debt Talks Continue