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>> Sandra: WE WANTED TO GET
SOME UNIQUE PERSPECTIVE ON THIS
WEEK'S WILD SWINGS ON
WALL STREET AND MAKE SENSE OF
THOSE BIG MARKET MOVES.
WE DECIDED TO BRING IN A MOHAMED
EL-ERIAN, CHIEF ECONOMIC ADVISOR
FOR ALLIANZ, PARENT COMPANY OF
INVESTMENT GIANT PIMCO WHERE HE
WAS CEO.
MR. EL-ERIAN ALSO SERVED AS
CHAIRMAN OF PRESIDENT OBAMA'S
GLOBAL DEVELOPMENT COUNCIL.
WONDERFUL TO HAVE YOU ON THE
PROGRAM THIS MORNING, MR.
MR. EL-ERIAN, THANK YOU.
IF IF I COULD FIRST ASK YOU -- I
KNOW YOU HAD A CHANCE TO LISTEN
TO THE INTERVIEWS BEFORE THIS,
KELLYANNE CONWAY FROM THE
WHITE HOUSE AND CONGRESSMAN
STEVE SCALISE.
IT'S AN INTERESTING MOMENT FOR
THIS COUNTRY WHERE WALL STREET
IS REFLECTING THE ACTIONS OF THE
WHITE HOUSE AND CONGRESS PERHAPS
IN A BIGGER WAY THEN WE HAVE
SEEN HISTORICALLY.
CAN YOU WEIGH IN ON THAT AND
SORT OF PROVIDE SOME CLARITY ON
WHAT WE ARE SEEING IN THE
MARKETS TODAY?
>> Mr. El-Erian: TO UNDERSTAND
WHAT'S HAPPENING ON WALL STREET,
AND THAT IS VOLATILITY,
UNSETTLING VOLATILITY IN THE
WORST DECEMBER IN HISTORY, YOU
HAVE TO LOOK BEYOND WASHINGTON.
WASHINGTON IS AN ADDED FACTOR
BUT THERE ARE THREE THINGS GOING
ON.
ONE, THE GLOBAL ECONOMY HAS
BECOME MORE UNCERTAIN.
NOT BECAUSE OF THE U.S.
THE U.S. IS DOING FINE, BUT
BECAUSE OF EUROPE BECAUSE OF
CHINA.
TWO, CENTRAL BANKS HAVE CHANGED
BEHAVIOR.
THEY ARE NO LONGER BUYING
SECURITIES.
THERE ARE NO LONGER KEEPING
INTEREST RATES REALLY LOW.
THE FED AND EUROPEAN CENTRAL
BANK ARE TIGHTENING LIQUIDITY.
AND FINALLY, BEHAVIOR HAS
CHANGED ON WALL STREET.
IT'S NO LONGER ABOUT BUYING
EVERY DIP, IT'S ABOUT SELLING
EVERY RALLY.
SO THERE'S A LOT GOING ON AND
THIS BEING AMPLIFIED BY COMPUTER
TRADING.
SO IT'S REALLY IMPORTANT TO GET
THE FOCUS BACK ON WHAT'S
WORKING, AND THAT'S THE U.S.
ECONOMY.
>> Sandra: YOU HEAR THE WORD
THROWN A LOT, RECESSION, THESE
DAYS.
OUR CONCERNS OF ONE, ARE THEY
OVERDONE AT THIS POINT OR IS
THAT BECOMING A REALITY?
>> Mr. El-Erian: IT CERTAINLY
NOT BECOMING A REALITY.
IF YOU WOULD NEED EITHER A MAJOR
POLICY MISTAKE OR A MASSIVE
MARKET ACCIDENT TO PUSH US INTO
RECESSION.
BUT WE WILL SLOW DOWN UNLESS WE
BUILD ON THE PRO-GROWTH
POLICIES.
AND I THINK THE WESTERN
INFRASTRUCTURE IS AN IMPORTANT
ONE.
YOU CAN GET BOTH PARTIES TO
SUPPORT THAT AND AN
INFRASTRUCTURE EFFORT WOULD
INCREASE PRODUCTIVITY.
YOU COULD DO IT WITH PRIVATE AND
PUBLIC PARTNERSHIPS AND
IMPORTANTLY, IT WOULD BUILD ON
WHAT HAS BEEN DONE SO FAR TO GET
US TO A HIGHER GROWTH PLATFORM.
>> Sandra: THERE'S BEEN A LOT
OF TALK ABOUT THE PRESIDENT'S
OPEN CRITICISM OF THE FEDERAL
RESERVE AND I KNOW YOU JUST
MENTIONED THE RISK TO THE
MARKETS THAT THE FEDERAL RESERVE
POSES WITH THESE INTEREST RATE
HIKES.
THE PRESIDENT HAS BEEN VERY
CRITICAL OF THOSE HIKES SAYING
THE ONLY PROBLEM OUR ECONOMY HAS
IS THE FED AND HE'S BEEN
CRITICAL SINCE HE TOOK OFFICE.
IT WAS A COUPLE YEARS AGO HE
SAID THE FED IS OBVIOUSLY NOT
INDEPENDENT.
HOW DOES THAT OPEN CRITICISM
FROM THE U.S. PRESIDENT, HOW
DOES IT AFFECT MARKETS?
>> Mr. El-Erian: IT CERTAINLY
UNUSUAL BUT I THINK EVEN THE FED
IS UNDERSTANDING THAT IT NEEDS
TO COMMUNICATE BETTER.
IT NEEDS TO DO TWO THINGS IN
PARTICULAR.
ONE, SHOW THAT IT IS MORE
SENSITIVE TO MARKETS AND WHAT'S
HAPPENING OUTSIDE.
THE RISK OF SPELL BACKS.
WHAT THE PRESIDENT HAS CALLED
GET A BETTER FEEL FOR WHAT'S
GOING ON.
AND THAT'S A COMMUNICATION ISSUE
THAT I THINK THE FED HAS
UNDERSTOOD JUDGING FROM WHAT
WE'VE HEARD FROM THE PRESIDENT
OF THE NEW YORK FED.
AND THEN SECOND, THE FED HAS TO
REALIZE THAT IT CANNOT KEEP A
REALLY IMPORTANT POLICY TOOL ON
AUTOMATIC PILOT.
THAT IT NEEDS TO BE MORE
SENSITIVE TO WHAT'S HAPPENING.
AND I THINK THAT THE FED CAN
REGAIN CONTROL AND WE CAN STOP
THE SELF-INFLICTED WOUNDS.
>> Sandra: TO THINK THE
PRESIDENT'S CRITICISM OF JEROME
POWELL AND HIS ACTIONS AS THE
FEDERAL RESERVE CHAIRMAN -- ARE
THEY WARRANTED?
>> Mr. El-Erian: NO.
I THINK THE PRESIDENT HAS A
POINT IN SAYING GET A FEEL FOR
WHAT'S GOING ON BEYOND THE
STRICT, NARROW DOMESTIC ECONOMY.
I THINK YOU DON'T WANT TO CROSS
OVER TO MUCH OF THE LINE OF
CENTRAL-BANK INDEPENDENCE.
CENTRAL-BANK INDEPENDENCE IS
VERY IMPORTANT FOR ECONOMIC
STABILITY.
IN ECONOMIC STABILITY IS KEY TO
ECONOMIC GROWTH.
AND INCLUSIVE GROWTH THAT BRINGS
UP EVERYBODY'S WELL-BEING.
SO I THINK THERE IS A POINT IN
TELLING THE FED BE MORE
SENSITIVE ABOUT THE SPELL BACKS
BUT YOU WANT TO MAINTAIN THE
AUTONOMY OF THE CENTRAL BANK.
>> Sandra: THERE IS JUST ONE
TRADING DAY LEFT IN 2018 AND
THAT OF COURSE IS TOMORROW AND
THE DOW IS ON PACE TO SUFFER ITS
WORST MONTH OF DATING BACK 2009.
THERE'S AVERAGELY CONCERNED ON
MAIN STREET.
IF YOU COULD LOOK OUT INTO THE
NEW YEAR AND TELL US WHAT YOU
SEE AS FAR AS THE ECONOMY AND
THE STOCK MARKET, WHAT ARE THE
BIGGEST RISKS AND THE BIGGEST
ASSETS AT THIS MOMENT?
>> Mr. El-Erian: I THINK THE
MOST LIKELY OUTCOME IS
DECOUPLING.
THE ECONOMY WILL REMAIN STRONG,
GROWING UP 2.5-3%.
IF WAGES WILL CONTINUE TO RISE
AT 3% OR NORTH OF THAT AND THE
ECONOMY ON A STAND-ALONE BASIS
WILL LOOK FINE BUT BECAUSE OF
WHAT'S HAPPENING IN THE REST OF
THE WORLD, BECAUSE LIQUIDITY
CONDITIONS HAVE CHANGED, MARKETS
WILL REMAIN VOLATILE.
SO DON'T BE SURPRISED IF YOU SEE
THESE THOUSAND POINT SWINGS IN
THE DOW.
THAT IS OUR NEW REALITY FOR A
WHILE AND IT REFLECTS THE FACT
THAT WE ARE COMING FROM A VERY
GOOD 2017.
PEOPLE FORGET THAT.
EVERYTHING WENT RIGHT INTO
THOUSAND 17.
HIGHER RETURNS, NO VOLATILITY
AND GREAT CORRELATION.
SO I THINK OF THIS AS A
NORMALIZATION.
IT DOESN'T FEEL GOOD IN THE
SHORT TERM BUT IT'S OKAY OVER
THE LONG-TERM.
>> Sandra: YOU SAY IT DOESN'T
FEEL GOOD.
IT JUST LAST WEEK IT WAS MONDAY,
CHRISTMAS EVE, THE WORST
CHRISTMAS EVE PERFORMANCE FOR
THE U.S. STOCK MARKET ON RECORD.
EVERYBODY CAME BACK FROM
CHRISTMAS DAY, WEDNESDAY, THE
DOW MORE THAN A THOUSAND POINTS,
THE LARGEST SINGLE DAY POINT
GAIN IN STOCKMARKET HISTORY.