With A Sea Of Red In The U.S. Stock Market – What Should Investors Do Now? Mohammed El-Erian, Allianz Chief Economic Advisor Who Has Been Warning Investors Not To Buy The Dips, Gives His Latest Thoughts On The U.S. Stock Market And The Global Selloff
When you are in the midst of a Black Swan event, it pays to have someone who is calm and can see through the chaos and make an informed, rational judgement. Mohammed El Erian, Chief Economic Adviser for the global risk management conglomerate, Allianze, has been pretty precient so far on the coronavirus and its likely negative impact on U.S. and global equities. Indeed, over a week ago, Mr. El Erian was warning investors that “ths time it is different,” and advised “not to buy the dips,” this time. It doesn’t mean he is always right of course. No one is. But, Mr. El Erian was interviewed on the financial news network CNBC this morning/Monday March 9, about his thoughts on the U.S. market and the global economy admist a severe selloff in equities.
Mr. El Erian, interviewed on CNBC’s Squwak Box, said “today will be messy, to state the obvious. Messy because we have lost basically all our anchors. We’ve lost our economic anchor due to the coronavirus, we’ve lost our policy anchor as people lose faith in the Fed’s ability to turn things around; and, over the weekend, we lost a market anchor, with OPEC’s swing producer role going out the window. So, things are going to be really treacherous for a while; and he advises most investors to stay on the sideline and not panic. There will be opportunities to buy stocks,” he said — “but, not now.”
“If not now (on buying stocks), why?” one of the CNBC anchors asked. Mr. El Erian said, “because you learn very quickly to respect technicals. Technicals have a way of overwhelming market action [the algorithims & program trading] and can take you well beyond the fundamentals. Meaning, unless you get a circuit breaker, technicals will feed on themselves for a while — making any drop exaggerate — what is actually occuring.”
“Are we beyond the fundamentals at this point?,” one anchor asked. No was his answer. adding that if the loss of confidence in central banks to come to the rescue erodes further, we could see a selloff of 20-30 percent. If the futures hold, we’ll be down about 20 percent from this year’s high. That doesn’t mean — if he is rightt that we could see another 10 percent to the downside, — tha you should sell everything he said. Good companies, who have good management, solid financials and strong leadership in their sector, will navigate through this black swan event. And, down the road, things will get much better as the drop in oil prices will be to the benefit to the consumer, as will fiscal stimulus and generous lending. As governments catch up, they will have a throw everything including the kitchen sink at this event. It won’t help us overnight, and in the immediate short-term; but, essentially he said this to shall pass, we’ll see better days later this year, and all the stimulus that is coming will act as a tailwind for econonic growth. Sound thoughts in the midst of this black swan event. RCP, fortunascorner.com