Submitted by Taps Coogan on the 1st of May 2019 to The Sounding Line.
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Allianz Chief Economic Advisor Mohamed El-Erian recently spoke with Bloomberg about his concerns over European and Emerging Market economies, emphasizing that the recovery this year has been about liquidity not fundamentals.
“It’s all about better fundamentals and better fundamentals end up attracting flows. The US is simply in a better place when you look at consumption, when you look at investment, and government is going to continue to contribute on the expenditure side to growth. That story is not repeated elsewhere in the advanced world. Europe…, they’ll be lucky to get to 1% growth this year. And if they don’t get to 1% growth this year, you and I are going to be talking about ‘stall speed,’ this notion that problems occur when you’re not growing fast enough.”
“…On the EM side, it’s incredible. Just look at the numbers. Argentina and Turkey are two flagship credits. Argentina’s 5-year CDS is trading at 13%. In other words, ;the market expects a 60% probability of an Argentine default. The currency is under pressure. The April 2021 bond… is at a yield of 21%. That is flashing red. Turkey is also flashing yellow and yet there’s been no contagion to the rest of EM. Why? Because of global liquidity conditions. Investors should understand that that is what they are betting on: the continuation of favorable global liquidity conditions. It’s not about fundamentals anymore…”
There is more to the interview, so enjoy it above.
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