I wouldn't be surprised if this notion of the Fed having to be sufficiently confident about inflation creeps in as a way of keeping markets from rushing to the terminal value. Mohamed El-Erian More Quotes by Mohamed El-Erian More Quotes From Mohamed El-Erian The world is on a bumpy journey to a new destination and the New Normal. Mohamed El-Erian new-normaljourneyworld Investors should invest on what they know. The biggest mistake is to invest on what they don't know. Mohamed El-Erian investorsshouldmistake Investors have to ask themselves two questions. How much can we grow our investments? And, can we afford our mistakes? Mohamed El-Erian investmentmistaketwo Investors should be cautiously positioned as the global economy and markets face major uncertainties. The downgrade will be a further headwind to growth and job creation in the U.S. Mohamed El-Erian growthfacesjobs We normally think if you're going to lend someone money, you should get some reward for doing this. In Europe, it's a tax! Mohamed El-Erian rewardseuropethinking How long can interest rates stay negative? Think about this. Not only are you lending your money to governments, but you're paying them interest for the privilege of doing so. Mohamed El-Erian governmentlongthinking The one instrument that has relative political autonomy is monetary policy. Central banks do not need to go to Congress to get approval for an interest rate hike. Mohamed El-Erian politicalapprovalneeds Once you start moving [market] lower, then you trigger of all sorts of things. You trigger people who have to sell because they're over-levered. So they sell their winners and their losers. They're just trying to raise cash. So, what you then get is spreading malaise throughout the global markets. Mohamed El-Erian tryingpeoplemoving Most people are under exposed to global assets, including foreign stocks, bonds and currencies. Mohamed El-Erian currencyassetspeople Today's reports confirm that, unfortunately, post-crisis America is still not back to its good economic self. Mohamed El-Erian selftodayamerica America's downgrade may serve as a wakeup call for its policymakers. It is an unambiguous and loud signal of the country's eroding economic strength and global standing. It renders urgent the need to regain the initiative through better economic policymaking and more coherent governance. Mohamed El-Erian countryamericaneeds The theory is that if you take interest rates negative, people are going to say, "That's a silly game! I'm not going to lend my money to governments who want me to pay them. I am going to go into the stock market where I can get positive returns!" Mohamed El-Erian governmentgamessilly The world changes! So we're in a situation today where the only policymakers that have flexibility are central banks. But they don't have the instruments! So they've had to experiment, and the more you experiment, the more uncertainty and the higher the risk of collateral damage. Mohamed El-Erian risktodayworld As we spend more, and as companies are pushed to invest, they say, "Hey wait a minute! There's more demand in the system. Let's invest more." Mohamed El-Erian heydemandwaiting I remember when I was growing up, you would go to a bank to open a deposit, and they'd give you a toaster. A free toaster. These days, if you're a company, and you go to a bank, they could easily turn you away! They don't want your deposits anymore. Mohamed El-Erian toastersgrowing-upgiving If you happen to be the only one with negative interest rates, you also weaken your currency, which means you make your exports more competitive. Mohamed El-Erian currencymeannegative [When] the market is trying to get to terms with, first, lower global growth, particularly out of emerging markets and China. And, second, the market is worried the central banks have run out of ammunition. So put these two things together, and then investors are repricing the market lower. Mohamed El-Erian growthrunningtwo The once-unthinkable loss of the AAA rating will constitute a further hit to already fragile business and consumer confidence. Mohamed El-Erian ratingconsumersloss It is hard to imagine that, having downgraded the US, S & P will not follow suit on at least one of the other members of the dwindling club of sovereign AAAs. If this were to materialise and involve a country like France, for example, it could complicate the already fragile efforts by Europe to rescue countries in its periphery. Mohamed El-Erian efforteuropecountry As a whole, investors should welcome attempts to safeguard the integrity of markets. You need very clear rules applied to markets. Mohamed El-Erian welcomeintegrityneeds
