Mohamed El-Erian, chief economic adviser to the Allianz SE warned that global markets underestimate the risks posed to them, the crisis in Ukraine, threatening recession for Europe.
He sees several options how to ease tensions between Ukraine and its Western supporters and Russia.
In an interview with Reuters, El-Erian said of his retirement from Pimco, which caused a lot of talk, and also noted that even a “one-two” round of mutual sanctions between Russia and the West – and in Europe, is likely to begin the recession. Which is very plausible, taking into account that Russia could reduce the supply of energy in anticipation of the winter heating season.
“It seems to me that the markets underestimate Ukrainian conflict,” – says El-Erian. “It is very difficult to find a solution to” reconcile “all three of his side – Ukraine, Russia and the West.”
In addition, he noted that the markets are overly rely on central banks, and in particular on the Fed and the ECB. After a series of experimental measures, after the 2008 financial crisis, the world’s leading central banks plunged into the “separation” of quotations from the basic principles of assets.
This gap, which consists of high quotes and lower main provisions form an “air pocket” that threatens the rapid collapse, if the markets will face a powerful catalyst, such as the crisis in Ukraine.
“My concern is that markets do not pay enough attention to geopolitical issues,” – he says. Although so far, investors are able to successfully maneuver in unstable market conditions in the background of the “geopolitical shocks.”
This is fraught with self-confidence that investors will take up defensive positions only in the presence of ambiguous evidence that the “turn” in the market has already taken place.
“Authoritative investor, once managed fund of Harvard University, in January left the post of general director Pimco, units of the German insurance giant Allianz, managing assets worth about $ 2 trillion, where he worked shoulder to shoulder with the guru of the bond market, Bill Gross.
S & P500 and the Dow Jones hit record highs, which once again confirms the theory of El-Erian’s a gap between the quotes and the fundamental principles.
Such dynamics of the indices was due to the actions of the Fed, which made other assets, and especially bonds, even more expensive, as well as maneuvers corporations that spend their cash on the purchase of its own shares or mergers and acquisitions, he said.
Shares want us to say, “We – expensive, but we are cheaper than other assets, which are much more expensive than us.”