Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Pimco’s El-Erian Says Greece Debt Crisis Response Risks Wider Contamination

Stock-Markets / Global Debt Crisis Jun 24, 2011 - 02:33 AM GMT

By: Bloomberg

Stock-Markets

Best Financial Markets Analysis ArticleMohamed El-Erian, CEO and co-CIO of Pimco, spoke to Bloomberg Television’s Betty Liu, Mike McKee and Jon Erlichman this morning.  He talked about Greece’s debt crisis, QE2 and whether QE3 should be on the table, as well as the IEA oil reserve release.

El-Erian said that the efforts to resolve Greece’s crisis risks contaminating the entire system because they don’t address structural problems. Excerpts from the interview can be found below, courtesy of Bloomberg Television.


El-Erian on Greece: “Greece, unfortunately, has two fundamental issues.  It has too much debt and it cannot grow enough.  What the response so far has been let’s treat this as a liquidity problem, not a solvency and growth issue.  One year into a massive bailout every indicator in Greece was soft.  And other parts of Europe have gotten contaminated, including the ECB.  If you continue with this approach, which is treating Greece as a liquidity problem, not a solvency problem, not only do you not solve it, but you risk contaminating other parts of Greece.”

On a default in Greece as the only way out for the Eurozone: “[Default] through a restructuring.  Identify the problems are a solvency issue, address it, and then try to safeguard other parts to minimize fundamental contagion.  We will get technical contagion, but that tends to be temporary and reversible.  What Europe should to be doing and working hard at is minimizing fundamental contagion.”

“Let the technical contagion play out.  Market participants understand what that is.  It will be a disorderly process for a while, but the markets will find a footing.  The critical thing is not to contaminate the whole system.  That is what we are risking day in and day out if we continue with a liquidity approach for a solvency issue.”

On the IEA releasing crude oil reserves today: “What we are seeing is that the governments are getting more and more sucked into the markets.  Phase one in the fourth quarter 2008 and 2009 was about governments normalizing markets.  The phase two, August 2010, when Bernanke was talking about QE2, was about governments trying to push up valuations to get as all to feel wealthier and spend more.  But then we get good and bad inflation.  Phase three, and today is an example of that, is governments are coming in and trying to distinguish between good and bad inflation.  The problem with all of this is that markets get very nervous when a non-commercial player comes into the market and you’re seeing that today.”

On Bernanke’s press conference yesterday: “I was surprised that [Bernanke] did not go further yesterday.  He said the slowdown is partly due to temporary factors. The U.S. faces structural headwinds.  In order for us to regain the growth rate and overcome unemployment, we have to overcome these structural headwinds.  The Fed is only starting to realize that. Yesterday was a step toward that, but not big enough.  We need to make that step if we are willing to get growth higher and unemployment lower in the U.S.”

On what the Fed could do to address the structural problems: “They need help from other agencies.  If you look at what the four structural issues are–they are housing, bank credit, public finances, and the functioning of the labor market.  These are things outside the domain of the Fed so to expect the Fed to do the heavy lifting is too ambitious.  Other agencies have not yet stepped up the plate in a coordinated fashion. ”

On QE2 and whether QE3 should be on the table right now: “QE2 is to increase asset prices within QE2, getting growth higher.  We got the first phase, but not the second phase.  That is not surprising because in order to get the second phase, you have to overcome the structural impediments.  Now the economy is in this very uncomfortable position where we have a wedge between fundamentals down here and valuations that have been pushed up by QE2.  QE3 would be also unlikely to meet the ultimate objective, which is a better economy.”

On where he sees crude oil three months from now: “I suspect a lot will depend on whether this is a one-step process or whether the IEA and the consumer countries are trying to give a bigger signal.  If you look at the numbers, it is not a huge issue.  But what the markets are waiting on is the signal about government involvement.  It is hard to predict the actions of a non-commercial player in the market.  Over the next few months, I think we will see a tremendous amount of volatility not only in oil, but other asset prices.”

On what it will take to get companies hiring and spending again: “If you look at economic spending, there is cash available. There is a wallet, but not the will.  When you go to the upper income households that are doing fine, it is the question of will.  For the will to be there, you need greater clarity.  Need greater clarity about the outlook, global growth and what policy makers want to do.  Until we get that clarity, a lot of people will be keeping their cash in their pockets, unfortunately.”

On where he sees equities and bonds in the next few months: “This is the bumpy part of it. People are starting to recognize that there are some major realignments going on.  Over the next few months we will see unusual amount of volatility in the market…It is going to be a volatile and messy process.  People should have dry powder because there will be lots of opportunities to become a good assets for cheap prices.”

bloomberg.com

Copyright © 2011 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