Noted economist Mohammed El-Erian is of the opinion that for the fact that too much money is chasing too few opportunities, there has been a steady rise in the stock market.
The Allianz chief economic advisor said in the TV interview that no longer the main factor driving the market is the so-called Trump trade which is essentially betting on stocks in hopes that the president's policies will boost economic growth.
"This is no longer a Trump trade. This is somewhere between a reflation trade, but much more importantly a liquidity trade. This is a liquidity-driven market," El-Erian said.
"I have underestimated the strength of the liquidity injections. Not just from the Fed, but I think the increase in [income] inequality has meant there's been less consumption and more investing in the market," he said. "And the profit share is so high that the companies are putting the money back into the marketplace."
The reason why last week's sell-off on U.S. President Donald Trump’s Russian investigation woes was short-lived was "ample liquidity", he said in a Financial Times op-ed earlier this week.
But, in recent times, investors have been driven to chasing riskier assets because of the prolonged easy monetary policies, El-Erian said. and he believes that sooner than later, the benefits of such easy monetary policies would eventually come home to roost. He said that global central banks are making investors "do things we and they 're going to regret" and the essentially thereby "distorting markets".
There's a hope in the stock market that betting on investments that would benefit from an increase in inflation and stronger economic growth or the liquidity trade hands off to the reflation trade, El-Erian said.
El-Erian said that the reflation trade may take over as the biggest driver of the market if Trump's proposed policies such as tax cuts and deregulation were to become reality and boost the economy as promised.
He said that the influence of central bank policies on the stock market would get diminished by such a move. But since the odds are more than 80 percent that the Fed will hike interest rates again at its June meeting, that would be fortuitous. It should be noted that rate increases tend to pressure stocks.
(Source:www.cnbc.com)
The Allianz chief economic advisor said in the TV interview that no longer the main factor driving the market is the so-called Trump trade which is essentially betting on stocks in hopes that the president's policies will boost economic growth.
"This is no longer a Trump trade. This is somewhere between a reflation trade, but much more importantly a liquidity trade. This is a liquidity-driven market," El-Erian said.
"I have underestimated the strength of the liquidity injections. Not just from the Fed, but I think the increase in [income] inequality has meant there's been less consumption and more investing in the market," he said. "And the profit share is so high that the companies are putting the money back into the marketplace."
The reason why last week's sell-off on U.S. President Donald Trump’s Russian investigation woes was short-lived was "ample liquidity", he said in a Financial Times op-ed earlier this week.
But, in recent times, investors have been driven to chasing riskier assets because of the prolonged easy monetary policies, El-Erian said. and he believes that sooner than later, the benefits of such easy monetary policies would eventually come home to roost. He said that global central banks are making investors "do things we and they 're going to regret" and the essentially thereby "distorting markets".
There's a hope in the stock market that betting on investments that would benefit from an increase in inflation and stronger economic growth or the liquidity trade hands off to the reflation trade, El-Erian said.
El-Erian said that the reflation trade may take over as the biggest driver of the market if Trump's proposed policies such as tax cuts and deregulation were to become reality and boost the economy as promised.
He said that the influence of central bank policies on the stock market would get diminished by such a move. But since the odds are more than 80 percent that the Fed will hike interest rates again at its June meeting, that would be fortuitous. It should be noted that rate increases tend to pressure stocks.
(Source:www.cnbc.com)
