Interview on CNBC 09/09/2014
"This market is now settling into the Great Moderation 2.0. This perception—that we are in a range-bound economy and predictable policies and that's going to cause quite a few rotations within the market," said El-Erian said on "Closing Bell."
"The Great Moderation, which stretched from the mid-1980s to 2007, was defined by low interest rates and below-average volatility. Ultimately, it led to a credit crisis.
El-Erian, chief economic advisor at Allianz, is concerned the market could see another credit crunch, at least if a slew of carry trades are any indicator.
He pointed to Greece issuing bonds at below a 5 percent yield, while yields on Italian and Spanish bonds are at record lows of below 3 percent, as recent examples.
"The minute you tell someone that we're in a Great Moderation, then the temptation to lever any risk element is huge. So He pointed to Greece issuing bonds at below a 5 percent yield, while yields on Italian and Spanish bonds are at record lows of below 3 percent, as recent examples.
"The minute you tell someone that we're in a Great Moderation, then the temptation to lever any risk element is huge. So we're seeing a major compression in the equity risk premium, in the credit risk premium, in the default risk premium, the liquidity and volatility," El-Erian said. "So I worry that people may be getting too comfortable with this notion, especially that the Fed is going into a more uncertain policy environment."
Separately, El-Erian said now is a good time to take profits considering the sluggish U.S. economy and geopolitical concerns around the world, including and especially surrounding Ukraine.
—By CNBC's Drew Sandholm, in the credit risk premium, in the default risk premium, the liquidity and volatility," El-Erian said. "So I worry that people may be getting too comfortable with this notion, especially that the Fed is going into a more uncertain policy environment."
Separately, El-Erian said now is a good time to take profits considering the sluggish U.S. economy and geopolitical concerns around the world, including and especially surrounding Ukraine".
