Mohamed El-Erian says investors should prepare for slower economic recovery and not expect 'US lawmakers to come to the rescue'
Mohamed El-Eriansaid investors shouldn't be overly reliant on stimulussupport from the Federal Reserve or US lawmakers.
- He said gold and government bonds offer little protection against major sell-offs.
- Democrats unveiled a $2.2 trillion stimulus plan this week, but El-Erian said "investors should not expect US law makers to come to the rescue."
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Investors need to wake up to the reality that the economic recovery will take longer to take place and they shouldn't overly rely on US lawmakers, Mohamed El-Erian said, in an opinion piece in the Financial Times on Monday.
The chief economic adviser at Allianz Investors said liquidity injections are "proving less potent" in overcoming a weak economic recovery, and there are "no easy ways" to protect portfolios against major stock sell-offs.
Gold and government bonds, which are traditionally considered safe-haven assets, have offered little protection to investors looking for diversification, he said.
"The rollercoaster ride in
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The S&P 500 is on course for its first monthly drop in six months. Before that stocks had staged a remarkable recovery since hitting multi-year lows in March underpinned by rock-bottom interest rates and a boom in technology stocks.
El-Erian said the government's policy response is becoming less reliable.
"What initially was an impressive policy response underpinned by three notions — "all in," "whatever it takes" and "whole of government" — is proving harder to sustain and not just due to political polarization," he said. "Investors also should not expect US lawmakers to come to the rescue."
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House Democrats unveiled late on Monday a new $2.2 trillion stimulus plan that includes reviving $600 in federal unemployment benefits and a second round of stimulus checks for millions of Americans.
El-Erian said the Federal Reserve's oral communication has included some "unsettling" and ambiguous language about its economic outlook and policy response.
The Fed has indicated that it has no plans to inject any fresh stimulus into the financial system at this point, although interest rates will stay near zero until at least 2023.
"The initial market enthusiasm about the more dovish-than-expected statement after the Fed's last
El-Erian said investors should not expect improved economic and corporate fundamentals in Europe or the US. Europe is facing a full-blown resurgence of cases Covid-19, with big daily increases in infection rates in Spain, the United Kingdom, France and Belgium.
"Recent economic data confirm what started as a V-shaped recovery is now proceeding at a much slower pace," he concluded.
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