Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Unpredictability Impact on Global Economy, Fed QE3 Won't Produce the Outcomes We Want

Interest-Rates / Quantitative Easing Jan 09, 2012 - 11:46 AM GMT

By: Bloomberg

Interest-Rates

Best Financial Markets Analysis ArticlePIMCO CEO and co-CIO Mohamed El-Erian spoke with Bloomberg Television's Betty Liu, Dominic Chu and Michael McKee about Europe's crisis, the U.S. economy and where to invest safely in this environment.

El-Erian said that the Fed "doesn't have enough policy instruments to deal with the challenges facing the economy" and that QE3 will not work. On investing opportunities, he said that "In the short term, the U.S. dollar is the best place."


El-Erian on the unpredictability in global markets leading to extreme events around the world:

"Normally, we're used to thinking of a bell shaped distribution. There's a dominant theme and very thin tails. Today we're looking at something different. We're looking at a distribution that is much flatter and the tails are much fatter. Think of Europe. Increasingly, most people agree that Europe can no longer kick the can down the road. One of two things is likely to happen. Either the euro fragments completely or you strengthen the euro zone but change its construct. That is what the fiscal compact we just heard is about. Increasingly, as you look around the world, we are moving towards a bimodal distribution that has significant implications for how you invest."

On where he sees the most market impact:

"First, it is not just risk. It is also opportunity. One exciting thing about this world is that when there are major transformations, there are both risks and opportunities. The biggest risk is interest-rate risk in sovereign space is becoming credit and default risk. The most extreme example is Greece. It used to be viewed as interest-rate risk--in the government bucket as stable. It has now become default risk. We may as well see haircuts in excess of 50%. The biggest risk is that people's mindsets don't evolve to understand that the underlying characteristics are changing."

On whether the Federal Reserve should move on QE3:

"The Fed does not have enough policy instruments to deal with the challenges facing the economy. They're trying to use communication as an extra tool now. WE have used rates, we have had QE, now you see them using communication, trying to push investors to take on more risk. The problem is two-fold. One is there is disagreement on the FOMC. Secondly, it is not a very effective policy instrument. There are not just limited benefits, but there are also costs and risks. The Fed is in a difficult position. It is trying to be active, but it does not have effective instruments at this stage."

On whether the U.S. is stuck in a liquidity trap:

"That's one of the views. Which is why not just jump start the whole thing and give a high inflation target and hope the system reflates. Critics talk about how difficult it is to produce the right outcome. You could overshoot and create a different problem. The fundamental issue is that the Fed cannot solve this alone. It is a bridge to somewhere. This has to include other agencies stepping up to the plate. So far, only the Fed has been doing its job. The others seem to be asleep at the wheel."

On whether QE3 is appropriate for the economy at this time:

"I do not think that on its own [QE3] can produce the outcomes we want. The outcomes would be higher job creation and contained inflation. That is the fundamental issue. The Fed is willing to do things, but it cannot guarantee unfortunately outcomes. For good outcomes, we need other agencies to also be doing their jobs."

On what needs to happen over the next few months to get over the mountain of debt facing European nations:

"We're seeing an important shift in the narrative. It goes from saving the periphery to strengthening the core. We need to see Germany and France to agree on how they will 'refound' the euro zone. Secondly, we need to counter the continued fragility of the banks. We just heard about an Italian bank. Third, we need to be able to mix that containment with growth. Finally, we need to decide how the burden will be shared in the peripheral economies that are insolvent. It is quite a list. They will have to do a lot of work. Hopefully they will be able to do it."

On how Europe's crisis will affect the U.S. and whether it will be a situation where nations around the world go up and down together:

"I think it will be a bit of the latter because it is a massive head wind. No matter how strong your internal dynamics are, there is this massive headwind called Europe. The banks are interlinked around the world. A lot of companies sell in Europe or export to Europe. We cannot avoid Europe. It is a significant headwind everybody has to cope with."

On the need for investors to stay defensive while remaining agile enough to take advantage of opportunities:

"One lesson from these big macro themes is that they tend to be indiscriminate. That is another way to say that they cause sell-offs in credit and stocks that are fundamentally sound. By focusing on the fundamentals and respecting the technicals, there are opportunities to be selectively offensive. Uncertainty and unpredictability should never lead to paralysis. It leads to figuring it out how the risk is changing and how the return is changing. We're living in an exciting world where there are lots of realignments. Sources of risks and returns are changing."

On where to invest safely right now:

"In the short term, the U.S. dollar is the best place. It is the cleanest dirty shirt. There aren't pure shirts anymore out there, so you have to focus on the cleanest dirty shirt. In addition to dollar exposure for the short term, stay focused on some emerging currencies that continue upward migration in terms of wealth and income. Stay away from the high-beta currency that are likely to be incredibly volatile in this less predictable world."

On whether U.S. stocks are also the 'cleanest dirty shirt':

"They are. But in this case, we have to ask the question. Alcoa is going to be very important as will other firms. To what extent are they being hit on revenue? To what extent can they continue to contain costs? We're going to get lots of information."

bloomberg.com

Copyright © 2012 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules