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Pimco's Mohamed El-erian: Stock Market On 'sugar High,' While Economy Still Asleep

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Market on 'Sugar High,' While Economy Still Asleep: El-Erian

Published: Wednesday, 29 Jul 2009 | 9:37 AM ET

The stock market spent July on a "sugar high," rising to levels not justified by an economy that is still limping along, Pimco's Mohamed El-Erian told CNBC.

Despite proclamations from some that the recession is over, El-Erian, co-chief executive officer of the largest bond fund manager in the world, said much more needs to happen before the economy registers real growth.

"The July part of the rally is a bit of a sugar high," he said in a live interview. "We need final demand. We need a feeling that deleveraging in the private sector has run its course, that people feel confident now to engage in consumption, investment.

"It's not happening yet on the national level, it's not yet happening at the global level."

The Dow industrials have gained about 7.7 percent in July as the market has surged on second-quarter earnings that have come in significantly above expectations.

But El-Erian stuck with predictions from various Pimco executives recently that the economy would be mired in gross domestic product growth of about 1 to 2 percent for the foreseeable future.

"We're not going to go back to where we've come from," he said.

While the banking sector has taken much of the focus during the current recession, El-Erian said it's now about the real economy, particularly wages and unemployment. Those two areas must recover, and that will take a while, he added.

"It's a multi-year process and it's not going to happen overnight," he said of growth in future years. "The economy is floating higher on public debt. There's a limit as to how much you can do that.

"For the balloon to stay up in the air you really need the private sector to kick in and you need the public sector to start dealing with its debt issues, and we're not seeing that yet."

© 2009 CNBC.com

http://www.cnbc.com/id/32200989

The full video interview with El-Erian is at the link above.

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Bond fund manager talks down equities?

Or is this place making me too cynical.

Im afraid it is, him and Bill Goss (maybe its Gross...) actually talk a lot of sense

You should read more of their interviews (MHO

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Bond fund manager talks down equities?

Or is this place making me too cynical.

Nah. This guy is usually a pretty straight talker and I can't see anything wrong with his logic from watching the video.

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Bill Gross, the bond king, is calling for a generation of stagnation. The phrase "new normal" is interesting. The idea that we are not going back to the cushy period of feel-good inflationary growth anytime soon.

But if you look at it from a cyclical perspective, and you consider that the growth was based on an expansion of inflationary credit, then this period was really, in the greater scheme of things, quite abnormal. Hence we could just say we are returning to normal. :)

Edited by roman holiday

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These guys love talking their own book. They should be investigated for market manipulation imho.

Name a banker who doesnt talk his own book?

Come to think of it, name a poster on HPC who doesnt talk his own book...

Pimco seem to have done better than most ;)

Wish I could invest in their funds from the UK..... hey ho, have to make do with Vanguard...

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Name a banker who doesnt talk his own book?

Come to think of it, name a poster on HPC who doesnt talk his own book...

Pimco seem to have done better than most ;)

Wish I could invest in their funds from the UK..... hey ho, have to make do with Vanguard...

Pretty sure you can invest in their funds in the UK, they have a London office as well as a Frankfurt office.

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Pretty sure you can invest in their funds in the UK, they have a London office as well as a Frankfurt office.

Thanks I never realised that, i shall check it out ;)

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Name a banker who doesnt talk his own book?

Come to think of it, name a poster on HPC who doesnt talk his own book...

Pimco seem to have done better than most ;)

Wish I could invest in their funds from the UK..... hey ho, have to make do with Vanguard...

yep and they benefited from the tax payer bailout

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