Submitted by Taps Coogan on the 13th of January 2020 to The Sounding Line.

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Yahoo Finance recently spoke with Allianz Chief Economic Advisor, Mohamed El-Erian, about the growing gap between the mediocre global economic outlook and financial markets which are surging through the roof. Mr. El-Erian notes that short term liquidity is enabling markets to “power through” all the outstanding uncertainties, making paramount questions about how long monetary policy can remain so easy.

 

Some excerpts from Mohamed El-Erian:

“I think investors are generally decoupled from the more cautious tone… and that more cautious tone is not just from the World Bank, from certain CEOs. It came also out of the biggest annual gathering of economists… at the American Economic Association. But markets say ‘that’s great but that’s not what’s driving asset prices higher.’ What’s driving asset prices higher is extremely accommodating liquidity, particularly from central banks, but also from corporate balance sheets. And that is what is going to continue… They have both been correct (markets and economists). That’s what happened in 2019. That’s why you have the very unusual outcome of a 30% increase in the S&P and a 12% increase in the bond index. Normally, you don’t get those sorts of moves together to that extent…”

“That speaks to why markets are short term constructive. But, if you look beyond the next few months, you’ve got to worry about not just economic uncertainties, but financial, geopolitical, political, social… So there is quite a list of uncertainties building up, but for now all that matters is the positive momentum that is created by liquidity.”

“…We are not going to get the scale and scope of the loosening that we got in 2019. 2019 is going to go down as one of the biggest years of monetary policy stimulus… Despite that, we are going to stay ‘low for long’ and that’s the message that the Fed wants markets to hear.”

There is more to the interview, so enjoy it above.

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