To understand the modern world of investing, risk management, and collisions between certain economic forces globally, listen to the following exclusive interview video of Mohamed El-Erian, co-CEO of PIMCO with Charlies Rose in July 24, 2008:

Source: Charlie Rose

Summary:

• Global economy is undergoing systemic economic transformation that cause collisions between certain economic forces globally. Currently, the global bond market and equity market provide inadequate picture on where the market is heading. The unthinkable became thinkable. The impossible became possible. This means the market is trying to tell us that there is a major transformation going on; and systemically the current financial system is not ready to deal with this current global market shifts.
• Back in 1997-1998, the then so-called emerging countries such as People's Republic of China, India, Brazil Russia, and Singapore had serious financial meltdown. Fast forward, now in 2008, these emerging countries have became much richer due their focus on saving and cautious spending due to traumatic memories on their past economic problems as well as the rise of prices of almost global commodities. They are now in fact financing developed-countries like United States. This is a global shift of economic power. The current economic framework and policies are inadequate and bound to collide with the in-progress economic power shift from developed-countries to emerging countries.
• During the real-estate bubble in the US (and also UK), complicated financial engineering and leveraged economic system where consumers were getting more and more leveraged caused prudent investors to be more and more cautious in taking spread risk of credit bonds vs. government bonds. This has caused abrupt subprime credit market meltdown in Aug 2008 that has since cause more casualties (e.g.: Bear Stearns collapse) and spreaded to other parts of credit markets. As a result, we are now living in the world of deleveraging where banks and financial institutions are trying to reduce their leveraged assets and to increase their risk management practices. If you can not finance it, you sell it. This is a painful process of deleveraging and derisking.

"It takes time to recapitalize the financial system. It doesn't happen overnight." ~ Mohamed El-Erian

Other recent interview with Mohamed El-Erian:

Bloomberg Interview with Pacific Investment Management CEO Mohamed El-Erian in July 2008:

Source: Bloomberg, YouTube

"In the old days, if the U.S. economy contracted, the rest of the world would do even worse. But today, if the U.S. contracts, the rest of the world might contract by only half. That's a fundamental change. The wealth of the emerging middle class in countries like Brazil, India and China is becoming a force in itself." ~ Mohamed El-Erian