This is what could trigger a market crash, says prominent economist Mohamed El-Erian


Investors across much of the country are waking up to Arctic temperatures and potential power outages, as a massive winter storm hits from the Ohio Valley to San Antonio. But it‘s heating up on Wall Street, where futures point to a post-Presidents’ Day rally. So we can be thankful for signs of falling COVID-19 infection rates in the US and a continued push from President Joe Biden‘s team to secure a $ 1.9 trillion stimulus package in Congress.

“The only growing nervousness at this time appears to be around the prospects for significant inflation driven by a combination of the emergence of COVID, generous stimulus packages and rising raw material costs,” said the chief investment officer of AJ Bell, Russ Mold, in a note to clients. Otherwise, keep shopping, right? Our call of the day from Mohamed El-Erian, Allianz’s chief economic adviser, presents some pitfalls to this rally of everything, along with a warning that investors could stumble into a “market crash” if they aren’t careful. “Investors are chasing what someone called the ‘rational bubble,'” the president of Queens’ College at the University of Cambridge told CNN in an interview. While they are fully aware that asset prices are high, they expect prices to rise further thanks to massive central bank liquidity and prospects for fiscal injections, he said. “Basically investors are confident in what is a historic wave of massive liquidity.” Inflation is a ghost here, even if the data says otherwise. “When the markets see price levels go higher than the Fed expects, they’ll be concerned and you’ve already seen longer-term bond yields rise, so there’s concern and you’re starting to see it in the future. market, “he said. The yield on the TMUBMUSD10Y 10-year Treasury note, 1.261% rose 4 basis points Tuesday to nearly 1.25%, a level not seen since last March, in part due to vaccine optimism. The- Erian said the Fed’s response is key and he believes it will continue to do its thing, intervening even more at the expense of distorted asset prices. What else could stop everything from recovering? A “market crash” such as one that could have caused contagion a few weeks ago when retail investors and hedge funds clashed for short stocks, he said. “So the first danger in all this excessive risk taking becomes irresponsible risk taking and s e produces a market accident. The second risk is the bond market. If you destabilize the bond market, you eliminate two reasons why people are so interested in stocks. One, this notion there is no alternative – well, if yields go up, there is an alternative, second with that low, taken down forever, discounted cash flow models indicate buy buy buy for stocks, “he said. El-Erian also intervenes in the bitcoin rally and where he sees the danger. It is not adoption, but “will the official sector allow this to continue?” But on the private side, he said more companies will likely follow the path of electric carmaker Tesla TSLA, + 0.55%, which recently made headlines by investing in the cryptocurrency, with plans to accept it as payment. Those companies “don’t know how else to mitigate risk. It’s part of the financial market distortion that we are seeing more generally. “The ES00 stock futures markets, + 0.54% YM00, + 0.66% NQ00, + 0.49% are rising, but the gains have not spread to European stocks SXXP, + 0.05%. Nikkei 225 NIK indices, + 1.28% and Hang Seng HSI, + 1.90% both rose more than 1%. Big action was in NGH21 natural gas power contracts , + 6.28% and RBH21 gasoline futures, + 4.43% higher, while US CL.1, + 0.76% crude fell below $ 60. Bitcoin BTCUSD, + 2.83% is approaching $ 50,000. Read: Oil ends Friday’s session higher due to tensions in the Middle East, with global prices rising more than 5% during the week The rumor Much of the US is experiencing freezing temperatures, and utilities order blackouts as reserves are depleted. In addition, the storm is causing several states to delay distribution tion of vaccines. As for the optimistic news about the pandemic, daily coronavirus cases in the United States fell below 100,000 on Friday and remained there on Saturday, although experts remain cautious due to fears about the spread of variants. Biden will be in Wisconsin on Tuesday, publicly defending his stimulus plan. The Empire State Manufacturing Index will be released before the market opens, one day before a major retail sales update. The Chart Hopes for a V-shaped recovery, a fast and sustained rebound, are improving.

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