Pimco’s Co. Chief investment officer, Mohamed El-Erian, told CNBC this morning he does not think the market rally will last. According to him, assumptions being made about the notion that corporate profitability can continue to be driven just by cost-cutting are simply not realistic since for that to happen corporations must have real revenue growth. He also rejects the idea that somehow the stimulus package will have a permanent effect on the economy, and that the stabilization of housing is sufficient to get the economy growing again.
In addressing Dow’s 8% rally this month, El-Erian said “the July part of the rally is a bit of a sugar high. 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,” he said, ” it’s not yet happening at the global level.”
El-Erian also emphasized that the economy would be mired in GDP growth of about 1 to 2% for the foreseeable future. “We’re not going to go back to where we’ve come from,” he said.
