Markets Not Facing ‘Reality’ Of Slow Economy: El-Erian
By Daniel at 19 January, 2010, 1:10 am
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Financial markets have failed to price in the remaining problems that bedevil a long-term economic recovery, Pimco’s Mohamed El-Erian told CNBC.
Inconsistencies that the market faces include the tax on bailed out banks that President Obama announced Thursday and its effects on their ability to lend; long-term unemployment issues and the difficulty in fixing them due to the federal budget deficit, and weaknesses with sovereign balance sheets, Pimco co-CEO El-Erian said in an interview.Despite these issues, stocks continue to climb, with the market about 60 percent above the March 2009 lows and posting mild gains so far in 2010.
“You come to the conclusion that the market simply hasn’t priced in the reality of what we talk about every single day,” said El-Erian, who helps run the world’s largest bond fund.
The bank tax will slap a $90 billion levy over a 10-year period on banks to cover expected lossed from the government bailout fund, the Troubled Asset Relief Program, or TARP.
“We have this inconsistency out there,” he said. “On the one hand we expect the banks to lend, to extend credit to get the economy going again. But on the other hand there’s a tremendous desire to tax them to target leverage, to target size.”
El-Erian said the “serious, sequential contamination” of world balance sheets will be a larger issue in 2010 and require corrective measures.
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When the cat is away(US mkt)..the mice is out to have fun??
US banks will post annual record revenue of US$450 billion (HK$3.51 trillion), thanks to the Federal Reserve’s easy money policy and bailouts.
But the bankers have apparently not learned their lesson as they will continue to receive huge bonuses.
US President Barack Obama has proposed charging a US$90 billion tax on financial institutions. Is it too late? The US government should have imposed strict control on banks earlier.
So why do bankers rush to cash in more bonuses? Are they afraid that they cannot make big profits in future? Probably yes. In Hong Kong, the local currency weakened last Friday
- dlsy
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