Updated: Aug 31, 2020
July 14, 2020, the chief economic adviser at Allianz, Mohamed El-Erian, warned:
“…the financial stress caused by COVID-19 is far from over.” (1)
Well, I’ll be, still yet more to blame on COVID-19 – financial stress. Let’s all ignore the stresses on the financial system which have been brewing for years, if not decades.
No, no, it’s all COVID’s fault. Had it not been for that doggone virus, our economies and finances would be in tiptop shape here in the land of chocolate.
Fret not, I’ll toss Mr. El-Erian a bone. Despite the hyperbolic ascent in the markets, this whole mess ain’t over yet. It’s a nice reprieve to see a high-level bankster decide to issue such a notice.
I must admit that I find it difficult to suppress my spidey-senses wondering about his motivations in doing so but that’s a rabbit hole I don’t feel like exploring today.
Instead, I turn to Bill Bonner, who noted in his daily diary on July 13, 2020:
“Stock market investors went howling mad…The last quarter (i.e. Q2 2020) was the best for the Dow Jones in 33 years. But for the economy, it was the worst quarter in history.” (2)
Wouldn’t you know it, as the Bizzaro meter continues to climb in this world, we now have a bankster and a self-anointed rogue investor somewhat on the same page!
Back to the former CEO of Pimco:
“Investor are showing insufficient concern. Some continue to expect a sharp, V-shaped recovery in which a vaccine, or a buildup of immunity in the population, allows for a quick resumption of normal economic activity. Others are relying on more backstops form governments, central banks and international organisations.”
I’m not exactly sure how Mr. El-Erian expects the population to buildup immunity when we’re all locked down…but this isn’t a medical blog so I’ll shelf that matter.
What I find baffling is his mention of governments, central banks and international organizations. For years he’s been advocating for these very institutions to intervene in the economy and financial markets so it’s a bit rich for him to suggest it’s wrong for the Main Street investor not to rely on these same institutions to keep the party rolling.
I agree with him that investors should not expect perpetual governmental backstops, but that’s been my position and contention for years. He seems to want his cake and to eat it too.
The MarketWatch article I sourced mentions:
“While retail investors continue with the risk-on attitude, El-Erian says the smart money has been raising cash in hopes of putting a ‘dual investment strategy’ to work…”
Well, at least there’s some good karma going on here, giving Main Street a further confirmation of what’s happening with the “smart money”. I wonder if anyone is listening at these breakneck market speeds?
My interpretation of this part of his warning?
Beware, Main Street investor. As you continue to push asset prices into the stratosphere, Wall Street is selling out positions and holding cash. Be careful not to be the last one standing with the hot potato.
Of course, that’s just my conjecture and by no means advice. I’m only bringing my own guess to Mr. El-Erian’s point. Remember, I’m not doling out advice here so please don’t act my words alone. Discuss with your advising professional. If you don’t have one or don’t trust your current one, click here.
Anyways, I’m really irked by his regular support of and advocacy for the central banking system while now stepping out and warning that we shouldn’t expect to be able to front run the central banks forever.
I believe his warning lacks sufficient substance because:
Strike 1: His deep entrenchment in the Bankster’s Paradise doesn’t help his cause (you know, former chair of President Obama’s Global Development Council…Contributing Editor to the Financial Times…Former CEO of PIMCO…)
Strike 2: He lacks the nerve to step out in direct opposition to the central banks to point out that their interventions have been causing all this financial stress for years. Central banks having been acting like swindler doctors who break the patient’s bone and then purport to try to heal it. Except these financial doctors don’t seem to comprehend their meddling is causing the ills.
In any case, I understand that Mr. El-Rian is caught between a rock and a hard place – if he wishes to call out the true shenanigans, he risks alienating the very hands that feed him.
No strike 3 comes to mind yet so he’s hanging in here, by a thread.
But heaven forfend he have the nerves of steel of the former Fed insider, Danielle DiMartino Booth. She’s been a constant voice for the antics inside the Fed, going so far as calling the Fed out in a recent interview on the Quoth the Raven podcast on June 19th, 2020. (3)
Be forewarned, it’s a no-hold-barred discussion so the language is…colorful.
At the very least, she’s had the backbone to push for taking the Fed down to its studs and rebuilding the system. She wrote a book called “Fed Up” about her experience and about what she thinks needs to be done.
Then there’s the likes of Peter Schiff and Ron Paul, with the cojones to suggest ending the Fed outright. Besides, according the DiMartino Booth, the Fed is run by economics PhD’s and Wall Street alumni with little understanding of real world economic and financial issues nor interests outside of their own. Perhaps taking them down to their studs won’t help anyway.
So, bottom line, I believe Mr. El-Rian’s warning has merit and should be considered. I just find it laughable that he continues to warm up to the central bankers who, in my Main Street estimations, are culpable in getting us into this mess in the first place.
But what do I know? I'm just a Recovering Bankster.