Tuesday, September 1, 2009

The Final Demand Question

Mohamed El-Erian,co-CEO and co-Chief Investment Officer of PIMCO,says what we have in the market right now is a sugar high.It is caused by 1.the impact of the inventory cycle,but will we get a hand-off to final demand by the consumer? and 2.a tremendous amount of liquidity missed the rally and is coming in now.When we get personal consumption and retail sales numbers-these are critical numbers.
Unfortunately,Mr.El-Erian noted,there is a lack of excitement about the upcoming G20 summit in Pittsburgh,which is concerning.I hope we're gonna jump-start this whole summit process.We at PIMCO have positioned ourselves more cautiously in higher quality assets around the world.Asset prices reflect a lot about this third hand-off to final demand,which the data don't reflect yet.Up till 2019,the debt-to-GDP ratio is gonna continue to go up.The dollar is gonna weaken.It's part of the global rebalancing.The question is whether it will do this in a disorderly fashion.Without intervention or coordination,the risk of this is high,Mohamed El-Erian cautioned.

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