Saturday, August 8, 2009

Bull Market Won't Last: Pimco's El-Erian

Mohamed El-Erian, chief executive of bond fund manager Pacific Investment Management Co, said Friday that U.S. stock markets are on a "prolonged sugar high" and that the bull market is unlikely to last.

"If we are in a bull market in stocks, it is unlikely to last," El-Erian told Reuters as the Dow Jones industrial average and Standard & Poor's 500 each gained 1.50 percent. "I think what we are seeing is just a prolonged sugar high for now," he added.

El-Erian said his concern is that stock markets have been turbo-charged by temporary and potentially reversible factors, including Federal Reserve programs and fiscal stimulus. He added that Corporate America has been able to surpass earnings expectations by way of layoffs and cutbacks in capital spending.

"It's too early to call for a sustained and vigorous recovery," El-Erian said. "Given the need to de-lever further, it is not certain which component of private demand will take over from the government as the driver of employment growth."

PIMCO believes that several risk assets, including U.S. equities, are overbought relative to the realities of the fundamentals, he added.