Friday, December 16, 2016

Allianz’s El-Erian Cites ‘illusion of Liquidity’ as largest market hazard



Mohamed El-Erian, leader economic adviser at Allianz SE, said Tuesday that Ukraine and Greece are major market dangers, however that the biggest danger is the “illusion of liquidity.”
“the most important threat is that this phantasm of liquidity,” El-Erian advised cable television network CNBC. “The essential situation is that you get a trade within the paradigm, and then humans discover that there isn’t enough liquidity to reposition.”
El-Erian said that the dearth of liquidity should bring about a marketplace selloff, despite the fact that he said this sort of scenario changed into no longer his “baseline.”
“If humans not accept as true with that we're in a low-volatility, improving U.S. economic system, geopolitical shocks grow to be too big. If all that modifications, then you definitely’re searching at least a 10 percentage correction, and at that factor, there's going to be a query of what holds.”
Curbs on banks’ capacity to take risks and an boom in generation-driven trading have led to dramatic upswings in volatility that have put publish-disaster monetary markets to the check in latest months.
A selloff in shares and lower-rated bonds closing October become worsened through a lack of banks and marketplace-makers capable of step in and buy belongings that had been being dumped.
El-Erian additionally said that, even as the dangers surrounding Greece’s finances and persevered warfare in Ukraine have been great, a Greek exit from the euro sector could not be cataclysmic for the global financial system, though it would create “short-term chaos.”

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