Investors have been bullish for some time on areas in which central banks have opened the liquidity spigot. But Mohamed El-Erian says it’s time to focus on other opportunities, including tech start-ups and private equity.
Mohamed El-Erian says he expects volatility to increase in the stock market, and says it’s not a time to be buying broad index funds.
Mohamed El-Erian says that while the latest jobs report isn’t perfect, it is “wow”-worthy — and that could actually mean US stocks will lag European equities in the short term.
Mohamed El-Erian says January’s jobs data was “very strong”, and may lead the Federal Reserve to start raising interest rates sooner than previously thought.
PIMCO’s Mohamed El-Erian says the U.S. economy is improving, but still has big issues to deal with. “We continue to heal … but we’re not at escape velocity,” El-Erian tells CNBC. He says that while improvement can be seen in areas like housing, the U.S. hasn’t gotten over “the three big issues”: not enough aggregate demand, too few structural reforms, and too much leverage (which has been shifted from the private sector to the public sector). El-Erian says he thinks Treasury yields may actually fall in the next few months, but he thinks that the long-term environment is one of rising rates. He also says the Federal Reserve’s economic growth projections are too high.
PIMCO’s Mohamed El-Erian says what’s happening in Japan is key to what will happen with the bond market in the U.S. El-Erian tells CNBC that the latest stage of the stock market rally seems to have been driven by Japan’s big stimulus efforts, and by the notion in general that central banks around the globe are “all in” in terms of bolstering markets. El-Erian says he thinks that over the next few months we’ll find that Japan central bank policies are becoming “increasingly ineffective”, however. He says markets have priced in the idea that central bank growth will give way to genuine growth — which means the big issue is whether or not that transition actually occurs before the effectiveness of central bank policies runs out. If the transition doesn’t go smoothly in Japan and other areas, El-Erian says we could be in for a “hell of a lot more volatility”.
PIMCO’s Mohamed El-Erian says that all assets are trading at “very artificial” levels due to central bank policies. El-Erian tells Yahoo! Finance’s Daily Ticker that central banks’ flooding of the markets with liquidity is the reason why stocks are up significantly this year while Treasury rates have actually fallen. He says that the U.S. economy is healing slowly, and that companies are helping markets by giving cash back to shareholders. But he says the markets are front-running central banks’ liquidity deluge, and that the most recent rise in U.S. markets is a front-running of the Bank of Japan’s loosening policies. All of this is okay if genuine growth at some point begins to drive things, El-Erian says — but if it doesn’t we could be in for big declines in asset prices as the liquidity flood stops. He says investors need to monitor things closely, and also should look at areas of the markets that aren’t driven by loose central bank policies, including some emerging markets and areas of U.S. markets that liquidity doesn’t reach.