Pimco co-CEO Mohammed El-Erian warns about what he sees as excessive optimism — or at least complacency — currently in financial markets.

“Judging from market valuations, I sense quite a gap between consensus market expectations and key political and economic realities, especially in the U.S.,” he says.

“If the gap isn’t bridged by the validation of the more optimistic expectations, investors may well find that January’s global equity sell-off was just a precursor to a disappointing year for several asset classes, including stock,”
El-Erian writes at Bloomberg.

The political atmosphere in Washington is tense and increasingly polarized, El-Erian notes.

“Bipartisan backing for measures is harder,” he says.

“With the political center shrinking, the ability to 'manage to the middle' is growing more elusive while the more partisan wings don’t command sufficient broad-based support.”

Making things even more difficult, El-Erian says, is that resetting the U.S. economy is happening at the same time that some emerging market countries are breaking out.

“Economic and political indicators are urging us to adopt a forward-looking structural mindset,” he points out.

“Yet too many markets — and, I would also argue, too many private and public institutions — seem hostage to cyclical forces.”

Brazil's economy is in its strongest position yet, with growth in 2010 expected to reach at least 5 percent, Central Bank President Henrique Meirelles said in a conference call with reporters.

"In a nutshell, after several decades of low growth and macroeconomic vulnerability, Brazil's economy is in the strongest macroeconomic position ever," Meirelles said.

Brazil, Latin America's largest economy, exited a six-month recession last year ahead of many more developed economies.