PIMCO’s Mohamed El-Erian on Where Investors Should Place Their Bets
El-Erian wondered 1) whether the Fed was committed to utilizing the same tools to maintain the disconnect between equity valuations and fundamentals, and 2) QE markets, including Japan (up 51%), have done really well with corporations utilizing the low interest rate environment to change their capital structure; and the question is whether this will continue, and 3) technicals have many investors getting sucked in for good reason, but at some point this becomes a technically fragile market.
El-Erian said investors should focus on what is certain instead of the QE trade which is getting pretty old, especially when the Fed is preparing to pivot.
El-Erian stressed that the Fed can only control part of the yield curve and they are bent on keeping rates low. Their policy rate will likely be zero well into 2016, El-Erian added. “They can anchor the front end of the curve, it’s doubtful whether they can anchor the long end of the curve,” El-Erian stated.
Wapner asked El-Erian his opinion on where investors should place their funds for the next 6-7 months. El-Erian said fixed income investors should focus on the front-end of the curve, while equity investors should look at specific sectors and global disparities where some emerging markets look attractive relative to the U. S.
El-Erian said investors should “fasten their seatbelts” as there will be volatility as the Fed alters its policy mix.
A year ago, El-Erian said there hadn’t been enough attention paid to European issues involving Germany and Greece [link].