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Wall Street Giant:
"Profoud Economic And Financial Shift"
Not gonna lie.
This research did cause a bit of that sinking feeling.
It’s easy to feel that way.
We naturally extend current trends indefinitely into the future.
Even if we’re aware of this natural tendency, it can still get you.
Especially when someone like Mohammed El-Erian agrees with you.
A little worry is always good.
But this time the level of worry El-Erian is projecting may cause you to miss out on great opportunities.
"Not Just Another Recession"
El-Erian recently wrote an article for Foreign Affairs called Not Just Another Recession.
It implies everything you expect in the title.
And we’ll get to the three main points that make up the thrust of his argument.
First, a bit about El-Erian.
As you know Dynamic Wealth Research isn’t one to pay too much attention to “economists.”
Many are just so focused on advanced econometric modelling they can’t spot obvious inflation.
El-Erian is a different type of economist.
Fortune magazine summed up El-Erian’s achievements in Top economist Mohamed El-Erian says we’re not just headed for another recession, but a ‘profound economic and financial shift’
1. Chief executive officer of the massively influential bond-market player PIMCO
2. Chaired former President Barack Obama’s Global Development Council
3. Written several economic best-sellers
The last of those is a total joke.
Best sellers are determined by promotion, distribution, and marketing from the Big Five book publishers.
The rare exception is books sold by people with established audiences.
Grumpy Cat (the cat from the meme) had two NY Times bestsellers.
So disregard that one.
And go ahead and disregard the fact El-Erian was the chair of the Global Development Council.
That was largely established to make the U.S. State Department’s global financial influence buying appear business-y.
The first one is the key there.
El-Erian was the head of PIMCO, a firm that manages more than $1 trillion primarily in bonds.
Bond investors are a different breed than stock jockeys.
The macro pic is essential for bonds.
If they get the wrong macro pic wrong and interest rates move against them, they can lose 10% or more.
And with bonds, it could take a couple years to recover from that kind of hit.
So when El-Erian, who headed one of the world’s largest and most successful bond investment managers, speaks about the macroeconomic picture, it’s usually worth listening too.
And here’s what he had to say.
Worst To First:
El-Erian’s premise in Not Just Another Recession is what it says - the current recession isn’t going to be like the last.
Of course, that’s always partially true.
He predicts long-term economic pain for many, consistent economic chaos, and the real risk of everything combining into multiple crises at once.
El-Erian sees three factors behind it all:
Three new trends in particular hint at such a transformation and are likely to play an important role in shaping economic outcomes over the next few years:
1. The shift from insufficient demand to insufficient supply as a major multi-year drag on growth
2. The end of boundless liquidity from central banks
3. The increasing fragility of financial markets.
It sounds pretty ugly.
When taken all together it is convincing too.
But when you break it down into its base elements, the improbability of all three forces combining at once is not likely.
Let’s look at them individually:
"The shift from insufficient demand to insufficient supply as a major multi-year drag on growth."
This is a fundamental misunderstanding of supply and demand.
The current inflation in prices is driven by too much money and not enough increase in production.
High prices should bring more production.
But in the case of energy, readily available and cheap energy production are intentionally handicapped.
So in this case supply is not rising with demand, but it’s intentional. Not market forces. Quite the opposite.
"The end of boundless liquidity from central banks."
Few things are less temporary than the Fed tightening money supply.
Wall Street has been addicted to cheap money for decades.
It will return.
Bet on it.
"The increasing fragility of financial markets."
Cheap money from central banks solve a lot of problems.
Right now a lot of dumb investments are getting dissappeared.
[cough, cough] NFTs!
That’s not market fragility, it's the bursting of multiple bubbles at once.
In the end, the pitch here is a direct and simple one.
This time is different.
This time, however, is never that much different.
Recessions are recession.
Recoveries are recoveries.
As long as a recovery isn’t intentionally sabotaged, the cycle will play out as usual.
Of course, being that this time isn’t different, it will certainly feel different in real time.
Keep that in mind as we press forward.