Kashkari uses an addiction analogy to illustrate his case: “It’s like a morphine drip; it makes the patient feel better, but it doesn’t cure underlying disease. The moment you try to take the morphine away, the patient wakes up in a lot of pain.”
This phenomenom, he says, is global, as central banks battle their own domestic debt woes — take Europe and the European Central Bank , for example. “The easy money is tool of choice for central banks around the world,” said Kashkari.
In this low-interest-rate world, corporate profits can stay strong, he said, and, naturally, Pimco is getting in on the action.
“We see many risks in Europe; from Greece, Portugal, and now Italy and Spain,” Kashkari said. “But we are finding names we like.”
Kashkari named Ensco as a top pick. “It’s one of the largest offshore drillers in world, trading at about 10 times our estimate of earnings. And it’s an example of a European company not directly at risk from European fragmentation, or Greek default.”
In the U.S., Kashkari likes Viewpoint Financial, a small Texas bank. “It’s tied to the strengthening Texas economy, and it’s trading at about 1.25 times tanglible book, when most of its peers are trading 1.7 times.”
Trading at a lower “tangible book” — a measure of what shareholders receive in the case of bankruptcy — is, in this case, another way of saying the company is less expensive that its competitors.
In both examples, Kashkari analyzes companies in the context of the ecomomic environment in which they operate. Said he: “We're finding names in equities globally.”
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Neel Kashkari does not personally own shares in Ensco or Viewpoint Financial. Pimco owns shares of both companies in its “Equity Mutual Funds.”
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