Mohamed El-Erian - Pimco

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Last quote by Mohamed El-Erian

This is no longer a Trump trade. This is somewhere between a reflation trade, but much more importantly a liquidity trade. This is a liquidity-driven market. I have underestimated the strength of the liquidity injections. Not just from the Fed, but I think the increase in [income] inequality has meant there's been less consumption and more investing in the market. And the profit share is so high that the companies are putting the money back into the marketplace.feedback
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May 24 2017 Trump Presidency
Mohamed El-Erian has most recently been quoted in an article called The Trump trade is taking a back seat in the stock rally, Mohamed El-Erian says. Mohamed El-Erian said, “This is no longer a Trump trade. This is somewhere between a reflation trade, but much more importantly a liquidity trade. This is a liquidity-driven market. I have underestimated the strength of the liquidity injections. Not just from the Fed, but I think the increase in [income] inequality has meant there's been less consumption and more investing in the market. And the profit share is so high that the companies are putting the money back into the marketplace.”. Mohamed El-Erian has been quoted a grand total of 68 times in 51 articles.
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Mohamed El-Erian quotes

It seems to be a patient market, and that has surprised me.feedback

First, I think you'll see lower markets. Second, you'll see very different sector performances. You would see quite a few movements within the market and overall.feedback

The stock market is being driven by three very powerful things. One is better global economic data. Two is cash continuously being put back into the market. And third, expectations that Mr. Trump's pro-growth announcement[s] will translate into policies. Keep an eye on next week's State of the Union because markets are looking for more details on where Congress is going to move on tax reform, on deregulation and on infrastructure spending.feedback

There's a limit to how far you can push prices without actually delivering on policies. Markets cannot just have the fuel of announcement. At some point, they need detailed design and they need implementation.feedback

It would involve stronger markets if, in cooperation with Congress, the Trump administration were to move on the pro-growth elements of its economic approach. If it does not, risk assets would retrace some of the gains under the Trump rally, with a sharper retracement if the world were to also slip into trade wars. So the probability of them moving in March goes down.feedback

I think we'll get some deregulation. But we need more than that to sustain the Trump rally. Phase two was consolidation when we were waiting for the inauguration and the laggards did particularly well, tech being an example. Phase three, that we're in right now, is volatility. And we're going to see a lot more volatility than we have for quite a while.feedback

It remains to be seen how all this will come together. The micro combines sectoral emphasis with the selective application of moral suasion to individual companies and even specific projects.feedback

Most emerging economies have been tempted at one time or another to borrow in dollars because the cost is perceived to be lower. Sovereigns have learned the really hard way and have stopped doing this. Corporates have not.feedback

I think the big question and where a lot of money can be made – but is going to be incredibly bumpy – is in the emerging world. The emerging world has not shared in this rally. In fact, you're getting eye-popping valuations on things like the Mexican peso that really don't make much sense at the end of the day.feedback

Things are aligning well for the market. The economy has a solid foundation. Policy is getting more pro-growth, and Congress is getting more functional. That's good for the U.S. economy. It's good for the markets.feedback

To the extent that the deficit is caused by pro-growth measures I worry a lot less. We have space, fiscal space. But we have to use it intelligently.feedback

If you deliver pro-growth policies, good things are going to happen. And hopefully that message will be heard not just on Capitol Hill but also in Europe and in Japan.feedback

You shouldn't forget about the banks in Europe and in Italy in particular.feedback

ETFs promise liquidity at reasonable prices. It's not clear that some of the ETFs in the high-yield space, for example, can actually provide that. If you're looking for where the risk has migrated, it has migrated ... within the non-banks, to the assumption that liquidity will be there when the paradigm changes. And what we've found over and over again is when that happens ... liquidity becomes very elusive.feedback

Don't underestimate their inclination to normalize after too many years at artificial low rates.feedback

For the first time in a very long time, I think the market is underestimating how much the Fed will actually hike. We're getting out of the world in which the Fed is the only game in town policy-wise. I think the Fed will become more strategic. [It's] going to be comfortable about the overall state of the economy, it's going to see a fiscal expansion coming, and it's going to be less data-dependent and more strategic.feedback

The hope is that the U.S. continues based on policy announcement becoming design and implementation, and I think that will happen, but we also need the rest of the world to get its act together.feedback

What you're basically seeing is a romance of reflation. It comes from the president-elect's emphasis on pro-growth policies.feedback

[Trump] has picked ... people who are committed to pro-growth, who have a feel for this.feedback

He's right. Interest rates will be lower than they have been in the past.feedback

He's going to do tax reform, both corporate and household. He will look again to regulation, with a view to deregulate. He will tinker with Obamacare. He will have a major infrastructure program. And he will also look to reform the energy [industry].feedback

If current market moves hold or go further, there is likely to be quite a bit of de-leveraging and forced selling tomorrow.feedback

I would deploy capital slowly. I wouldn't go all in on Wednesday morning after a big loss if there was a sweep one way or the other.feedback

I would caution about the Brexit argument. The Brexit argument is go in there immediately because it will bounce back fully. Be careful, this is a little bit different. The U.S. is systemically much more important than Britain is and there's lots of other uncertainties.feedback

You need only look at how fast investors overcame their initial Brexit fears to realize that something else has been in play – and that is, enormous faith in the ability of central banks to repress financial volatility and to succeed in doing so almost regardless of political and economic developments.feedback

Unless Congress swings in an unexpected manner in favor of the next President's party, whoever is elected to the White House would find their degrees of freedom quite limited – especially given some of the statements that have been made on the campaign trail.feedback

Should the outcome of the Italian referendum go against Prime Minister Renzi, you would have to ask if we are getting closer to that point.feedback

The risk of financial instability down the road is getting higher and higher. And the longer we stay at these artificial, ultra-low rates the more we fuel financial instability down the road.feedback

The remarks are unlikely to have an immediate impact on Bank of England policies. But they are part of a broader warning that is applicable to central bank autonomy around the world.feedback

Her statements are even more notable because they come from a country that has benefited enormously from economic and financial internationalization, and from a government that, in the aftermath of the Brexit referendum, was shielded from unsettling financial instability by effective measures from the Bank of England.feedback

Deep-rooted anger, an asymmetrical turnout, and yet another referendum miscalculation by 'expert opinion' seem to also have played a role.feedback

Deutsche Bank is not Lehman and does not threaten a 2008-like 'sudden stop' to the global economy.feedback

What that does is it completely paralyzes governments, and it allows central banks to step in, and central banks feel compelled to step in.feedback

The government's 'go slow' negotiating approach, together with a reluctance to provide frequent updates, calms markets in the short-term. To avoid disorderly volatility down the road, the government will need to pivot to a credible alternative to the current EU trading arrangements coupled with policies to compensate for possible growth shortfalls.feedback

While the Federal Reserve held rates unchanged, the highly unusual 7-3 vote points to the depth of its policy dilemma and makes a December hike more likely.feedback

This mixed jobs report puts the Fed in a tricky situation. It's not all-around strong enough to assure a September interest rate hike. But it's solid enough to engender a heated policy discussion.feedback

What makes that probability go a lot higher a Friday report that has three things: job creation in excess of 180,000, wage growth going up and no significant move in the participation rate that pushes the unemployment rate up.feedback

It'd be very hard for them not to hike if jobs, the participation rate and wages are all saying you got to go forward because we're near full employment.feedback

They can't even reach the current inflation target. The truth is it's up to other government agencies to step up to the plate. The Fed has been the only game in town for too long and if it continues like this the collateral damage could be quite large.feedback

[But] in fact, you get counterintuitive results. People save more. The financial system starts fermenting.feedback

We as a society fell in love with finance as the engine of growth. Up to 2008, we depended on private finance. Since 2008, we've depended on central banks. We have forgotten what it takes to growth an economy in an inclusive manner.feedback

Politicians are not stepping up to the plate. If we're not careful we're going to take a turn where slow growth turns into recession.feedback

It's all outflows, so he's going to have a reality check with the balance of payments pretty soon, and that's going to have some consequences beyond Turkey.feedback

Long term, we're building up for a lot more volatility down the road.feedback

We have this massive disconnect between domestic economic conditions and a yield curve that prices lots of other things in the economy, and that disconnect is something that we don't quite fully understand, but it's most likely going to lead to a further disconnect between economics and finance.feedback

I don't think the Fed's inconsistent. I don't think they've lost credibility. But if you're data-dependent, you're going to look inconsistent.feedback

We're going to hear a lot more from Fed officials and they're all going to be telling us one thing, which is the market is still underestimating the expectation of a rate hike this summer.feedback

They were worried the market was underestimating a rate hike this year.feedback

If you work backwards, we will definitely have a rate hike this year, maybe two. How early? July. Could it be June? Yes, but the polls for Brexit would have to give them a lot of confidence that British citizens will vote to remain. It's hard to say between June and July, because they've got this massive Brexit vote on the 23rd.feedback

Whether the Fed ends up hiking in June depends on a continued gradual improvement in the labor market and wage expectations, together with relative economic and financial calm internationally.feedback

With the horrible tragedy leading to some short-term restraint to French GDP, equity markets are likely to open lower with both government yields and the euro falling.feedback

No one can escape the implication of a further deterioration in the US fiscal situation. And it's not just about the US, it's also about the global economy. The US is at the core of the global economy.feedback

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