Tags: el-erian | greece | google | investors

El-Erian Puts Odds of Greek Financial Accident at 55 Percent

By    |   Wednesday, 17 Jun 2015 05:53 AM

Ahead of scheduled appearances by Treasury Secretary Jack Lew and Federal Reserve Chair Janet Yellen, an array of pundits and investors came forward on CNBC to express their views on whether and when the Fed will begin to raise interest rates and how likely and dangerous an untoward financial event could occur in the eurozone.

First, David Kahn, Managing Director of Convergent Wealth Advisors, suggested, as these articles have recently noted, that the consensus is the Fed will act at its September meeting.

Kahn cited mixed signals on the state of the economy, but he thinks “the Fed is going to want to start this process of getting rates back to normal; it’s going to take multiple years, but we still think September’s the most likely course of action.”

He went on to express a positive view on the performance European stocks versus expectations, due in part to the 15 percent competitive advantage EU firms enjoy as the euro has weakened against the dollar, with the companies trading at 1.8 times book versus 2.8 in the U.S.

Next, Robert McTeer, former President of the Dallas Fed, now at the U.S. National Center for Policy Analysis, agreed with the September consensus but made the case for the Fed to act between meetings on July 29 based on the rationale that the FOMC now has a negative first quarter to look at, whereas on July 29 it will have “much better” second quarter numbers, and if they want cover to do it, that should give it to them.”

The interviewer proposed a 25 basis point (bp) “one and done” action, and McTeer agreed, saying this “would show the world it’s no big deal.” He then acknowledged that 25bp or 50bp rise would be a “baby step” and leave rates “ridiculously low.”

Asked whether the Fed might be acting too early, McTeer replied it is more likely too late.

Ashwin Bulchandani, Chief Strategist at MatlinPatterson, added the role of Russia to the mix as a force in destabilizing both the Ukraine and Greece. However, he distinguished the issue of contagion this year from the “cascading defaults” of 2008.

Asked “who is on the hook,” Bulchandani found that three quarters of the debt is “concentrated in official hands.” However, he warned of a liquidity problem in long-only mutual funds that have become shadow banks.

Darrell Cronk, President of Wells Fargo Investment Institute, responding to a question from CNBC’s Brian Sullivan about potential contagion from Greece, views the absence of “flight to safety movements into vehicles like German bunds and the dollar” as evidence that Greece is not an imminent problem.

Sullivan pointed to the doubling of the U.S. stock market since the Greek crisis began in 2009 as a sign that authorities are ultimately backstopping markets.

Next, CNBC’s Herb Greenberg singled out Google as a stock subject to a “day of reckoning” because of stock-based compensation growing faster than revenue, because it is “doling out stock like candy,” so that, “There’s a 24% gap between GAAP and non-GAAP earnings; watch out.”

Finally, Mohamed El-Erian, Allianz Chief Economic Advisor, explicitly disagrees with Cronk on the likelihood of a deal with Greece because the EU negotiators “have hardened their positions” because they have concluded the eurozone would be better off without Greece.

He sees the Greek economy “imploding,” the prospect of capital controls, and a Greek financia accident, or "Graccident," as 55 percent likely.

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Robert-Feinberg
Mohamed El-Erian, Allianz Chief Economic Advisor, sees the Greek economy “imploding,” the prospect of capital controls, and a Graccident as 55% likely.
el-erian, greece, google, investors
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2015-53-17
Wednesday, 17 Jun 2015 05:53 AM
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