El-Erian Warns Of "Enormous Risk In Public Markets... Better Seller Of Stocks Than Buyer"

Investors "have been conditioned to believe, over and over again, that central banks can shield them," but, as Allianz' Mohamed El-Erian warns "the probabilities are now starting to tip in the likelihood of a bad outcome." Simply put, El-Erian explains that financial markets have "decoupled" from the economic problems of the world leaving "enormous risk in public markets because that’s the one that central banks have distorted to the greatest extent."

 

As Bloomberg reports, Mohamed El-Erian said he’s favoring cash as well as the riskiest investments, such as venture capital, in his own portfolio.



Cash comprises about 30 percent of his portfolio, which is more than most people have, according to El-Erian...

“There’s enormous risk in public markets because that’s the one that central banks have distorted to the greatest extent,” said El-Erian, chief economic adviser at Allianz SE and a Bloomberg View columnist.

 

“It’s very hard to say I’m going to buy a basket of public equities and go to sleep for the next five to 10 years and feel good about the returns. Similarly with bonds.”

 

Financial markets have “decoupled” from the economic problems of the world, such as the British vote in June to leave the European Union, El-Erian said.

 

 

“They’ve been conditioned to believe, over and over again, that central banks can shield them,” he said.

While there’s a chance that economic fundamentals will improve and validate asset prices, a more likely scenario is that valuations will decline and lead to financial instability, he said.

“The probabilities are now starting to tip in the likelihood of a bad outlook,” El-Erian said.

 

“They’re starting to tip in favor of low growth, giving way to periods of recession. This is a better time to be a seller of stocks than a buyer.”