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Monday, January 09, 2012

El-Erian Predicts the Unpredictable

News summary by MFWire's editors

Mohamed El-Erian is predicting the unpredictable happening in 2012. The Pimco CEO makes the (safe?) call in an opinion piece published in the Wall Street Journal.

Safely, he does not take personal credit for the call, but gives a hat tip to "a professional acquaintance whom I respect highly."

The key takeaway from El-Erian is that "the global economy losing important anchors." Those anchors include the euro zone and political normalcy in the United States that have heretofore put it in charge of its economic destiny.

He posits that other emerging economies (China and India) have more influence but lack institutions.

The result is an increasing awareness of "fat tails" and "more people around the world to opt for 'self insurance,' thereby sucking growth oxygen from the global economy."

El-Erian recommends investors spend "more time decomposing asset classes into their constituent risk factors" and internalizing "a much broader set of correlations" while pursuing "a more global opportunity set."

In short: he recommends "prudence" and "patience" but not "paralysis."

Based on the MFWire's long experience of seeing the opposite of what the smart people in the room expect to happen, actually happen in the world, we predict it will be a quiet year with a booming stock market. 

Edited by: Sean Hanna, Editor in Chief


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