Daily Management Review

Economist Mohamed El-Erian Says That In The Stock Rally, The Trump Trade Is Taking A Back Seat


05/24/2017




Economist Mohamed El-Erian Says That In The Stock Rally, The Trump Trade Is Taking A Back Seat
Noted economist Mohammed El-Erian is of the opinion that for the fact that too much money is chasing too few opportunities, there has been a steady rise in the stock market.
 
The Allianz chief economic advisor said in the TV interview that no longer the main factor driving the market is the so-called Trump trade which is essentially betting on stocks in hopes that the president's policies will boost economic growth.
 
"This is no longer a Trump trade. This is somewhere between a reflation trade, but much more importantly a liquidity trade. This is a liquidity-driven market," El-Erian said.
 
"I have underestimated the strength of the liquidity injections. Not just from the Fed, but I think the increase in [income] inequality has meant there's been less consumption and more investing in the market," he said. "And the profit share is so high that the companies are putting the money back into the marketplace."
 
The reason why last week's sell-off on U.S. President Donald Trump’s Russian investigation woes was short-lived was "ample liquidity", he said in a Financial Times op-ed earlier this week.
 
But, in recent times, investors have been driven to chasing riskier assets because of the prolonged easy monetary policies, El-Erian said. and he believes that sooner than later, the benefits of such easy monetary policies would eventually come home to roost. He said that global central banks are making investors "do things we and they 're going to regret" and the essentially thereby "distorting markets".
 
There's a hope in the stock market that betting on investments that would benefit from an increase in inflation and stronger economic growth or the liquidity trade hands off to the reflation trade, El-Erian said.
 
El-Erian said that the reflation trade may take over as the biggest driver of the market if Trump's proposed policies such as tax cuts and deregulation were to become reality and boost the economy as promised.
 
He said that the influence of central bank policies on the stock market would get diminished by such a move. But since the odds are more than 80 percent that the Fed will hike interest rates again at its June meeting, that would be fortuitous. It should be noted that rate increases tend to pressure stocks.
 
(Source:www.cnbc.com) 






Science & Technology

China is developing technology to capture greenhouse gases

IEA: The growth of renewable energy is slowing

Google introduces new smartphone and beta Android Q

SpaceX’s Dragon Crew Capsule Test Met With Anomaly

New Security Study Finds Millions Use 123456 As Password For Email Accounts

The Devastating Panama Disease Could Spell Extinction For Bananas

Walmart to hire 4 thousand robot cleaners

Samsung Galaxy Fold: Expensive but fragile

USA and South Korea launch the first commercial 5G networks

Deliveries of AR/VR devices to grow by 54% in 2019

World Politics

World & Politics

The Earth Is ‘Not On Track’ To Tackle Global Warming: The U.N. Secretary General

Is Finland’s aging population turning the country into Japan?

The United States will impose new duties on Chinese goods on Friday

Jyrki Katainen: EU is not a milk cow

Oil lobby and the planet's future

Trump files a lawsuit against Deutsche Bank and Capital One

Trump Urged Abe To Influence Japanese Auto Firm To Produce More Vehicles In The U.S.

IEA: Iraq will enter the top three oil leaders