Pimco’s El-Erian Says We Are In Unchartered Waters Here!
Posted By thestatedtruth.com on May 20, 2010
By Rita Nazareth
May 20 (Bloomberg) — The Standard & Poor’s 500 Index’s 12 percent decline from April’s high may worsen amid concern that Europe’s debt crisis will derail global growth, said Mohamed A. El-Erian, chief executive officer of Pacific Investment Management Co.
“This is not a typical retracement,†El-Erian, 51, whose firm runs the world’s biggest bond fund, wrote in an e-mail to Bloomberg News. “We are in uncharted waters on account of several issues, including what is going on in Europe and other important structural regime changes. In economic terms, European developments are unambiguously bad for global growth.â€
European stocks retreated as uncoordinated attempts by policy makers to resolve the region’s debt crisis unnerved investors. Euro-area finance chiefs will meet in Brussels tomorrow to hammer out details of the emergency lending mechanism in a rescue package for debt-burdened governments.
‘Risk Aversion’ “This will amplify the impact of higher global risk aversion,†El-Erian wrote. “Some areas — like the U.S. Treasury bond market — will also feel the impact of capital inflows on account of flight-to-quality. After over-emphasizing the cyclical tailwinds, markets around the world are now pricing in the structural headwinds, doing so in a rather volatile fashion,†El-Erian wrote.
El-Erian has forecast an extended period of below-average economic growth, increased regulation and lower consumption in what Pimco, which manages more than $1 trillion from Newport Beach, California, has called the “new normal.†The U.S. economy faces a “protracted post-crisis resetting†as high unemployment persists, he wrote in a Bloomberg News column in February.
Investors have wrongly priced in an “orderly†withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, El-Erian wrote. That means Wall Street projections for gains in 2010 may prove incorrect and prices will slump, he said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aPcF.fPJgadU&pos=5
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