Business & Financial News, Breaking US & International News

Mohamed El-Erian Live Q&A

Hello, everyone. Thanks so much for joining us. We will begin the live discussion with Mohamed El-Erian in just 10 minutes.

by Katharine Herrup 7/7/2011 12:50:12 PM
Hello again everyone

by Katharine Herrup 7/7/2011 1:00:15 PM
And, hello, Mohamed!

by Katharine Herrup 7/7/2011 1:00:25 PM
Thanks very much for joining us today.

by Katharine Herrup 7/7/2011 1:00:34 PM
Ready to get started?

by Katharine Herrup 7/7/2011 1:01:03 PM
Thank you Katharine. Its my pleasure.

by Mohamed.El-Erian 7/7/2011 1:01:06 PM
And hello to everyone. I am delighted to be with you.

by Mohamed.El-Erian 7/7/2011 1:01:19 PM
We’ve received many questions in advance ranging from the US debt ceiling to the European debt crisis to monetary policy to China, Egypt, Nigeria, Turkey and the Middle East to investing to technology.

by Katharine Herrup 7/7/2011 1:01:30 PM
Thanks very much for joining what is my first Reuters blog Q & A. I greatly appreciate you being online too. And please have patience with my slow typing (and my typos)!

by Mohamed.El-Erian 7/7/2011 1:01:30 PM
Yes, I am ready to get started

by Mohamed.El-Erian 7/7/2011 1:01:39 PM
Let’s get started with the biggest topic today -- the debt crisis in Europe. You said one country would leave the euro. Which country is that and has that day drawn closer?

by Katharine Herrup 7/7/2011 1:01:43 PM
Europe's peripheral situation is worrisome -- call it a bad situation that, unfortunately, will get even worse before it gets better. Indeed, in a recent piece for Reuters a few weeks ago, I noted that Europe unfortunately faces a set of bad choices. And this is playing out in Greece which is the most vulnerable country for both a debt restructuring and a Euro zone sabbatical.

by Mohamed.El-Erian 7/7/2011 1:03:25 PM
A question from Facebook:

by Katharine Herrup 7/7/2011 1:03:53 PM
Tad Askew Good afternoon - what's a better investment long term in the year 2011 - investing in the US - or investing in China ?

by Katharine Herrup 7/7/2011 1:04:02 PM
Tad, I would combine them both in a well-balanced portfolio.

by Mohamed.El-Erian 7/7/2011 1:04:29 PM
Recall that the two play very different roles in a global asset allocation.

by Mohamed.El-Erian 7/7/2011 1:04:40 PM
China is a growth play. The key is to be able to tap the high growth areas and benefit from the incremental value. Increasingly, this emphasis will shift from export-oriented companies to those supplying growing domestic consumption. The currency also looks attractive.

by Mohamed.El-Erian 7/7/2011 1:04:58 PM
THe Euro took a big slide this morning

by JMK 7/7/2011 1:05:28 PM
In the case of the US, look primarily for consolidation, EM exposure and dividend plays. Stay high up in the capital structure for unsecured debt exposures, including in the area of municipals. And guard against dollar weakness.

by Mohamed.El-Erian 7/7/2011 1:05:29 PM
Thanks JMK. For the last 36 hours, markets have been adjusting to Portugal's downgrade to junk by rating agencies
. This has had quite an impact on the country's credit spreads, those of other peripherals and the Euro

by Mohamed.El-Erian 7/7/2011 1:06:53 PM
What do you expect the behavior of the bond market will be after the end of QE2?

by Gamal Khalifa 7/7/2011 1:07:13 PM
Thank you

by JMK 7/7/2011 1:07:49 PM
The bond market is in the midst of a tug of war. On the one hand, yields face downward pressures because of the weak economy and the disruptions in Europe. On the other hand, they face upward pressure due to the end of QE 2, continued high issuance by the Treasury, and a slow and gradual increase in credit risk.

by Mohamed.El-Erian 7/7/2011 1:08:10 PM
Investors must navigate well this tug of war. And they benefit from finding alternatives that, in a proper mix, perform the portfolio role (“hard duration”) of Treasuries in most states of the worl
d while minimizing the specific risks.

by Mohamed.El-Erian 7/7/2011 1:08:30 PM
JMK--my pleasure

by Mohamed.El-Erian 7/7/2011 1:08:39 PM
One from Twitter:

by Katharine Herrup 7/7/2011 1:09:15 PM
dooolism Adel Abdel Ghafar: come back 2 egypt and b finance minister?

by Katharine Herrup 7/7/2011 1:09:19 PM
Adel, your question brought a smile to my face. Having said that, let me assure you that there are many Egyptians that would do a better job than me! And I already have a great job at PIMCO. Thank you.

by Mohamed.El-Erian 7/7/2011 1:10:05 PM
And, one question
from the blog post:

by Katharine Herrup 7/7/2011 1:10:29 PM
Posted by JimHughes

by Katharine Herrup 7/7/2011 1:10:36 PM
Would you consider the Post of US Treasury Secretary if President Obama asked you to replace Timothy Geithner?

by Katharine Herrup 7/7/2011 1:10:42 PM
LOL. Same as the previous answers! There are better candidates than me for this post. And I am very happy with my current job!

by Mohamed.El-Erian 7/7/2011 1:12:02 PM
Question from Floyd Higgins: What would happen if the debt limit is not increased and what would happen to the average American??

by Katharine Herrup 7/7/2011 1:13:10 PM
Great question, and very topical

by Mohamed.El-Erian 7/7/2011 1:13:34 PM
Here is the likely sequence Floyd if you assume that we do not get political agreement (and note that
President Obama is working very hard to reach a compromise that is acceptable to both parties).

by Mohamed.El-Erian 7/7/2011 1:14:01 PM
If Congress does not increase the debt limit, the government will be forced to prioritize payments. It would most probably start by reducing program transfers (including to the elderly) and all sorts of Federal outlays (including to Federal employees). States would also
be impacted. And concern would mount about the ability of the government to keep up its debt service payments.

by Mohamed.El-Erian 7/7/2011 1:14:26 PM
For the average American, this would translate into another headwind to employment creation, higher market interest rates, and even less enthusiasm on the part of cash-rich companies to invest.

by Mohamed.El-Erian 7/7/2011 1:14:49 PM
And to make things even more complicated, there is also an important element of unpredictability.

by Mohamed.El-Erian 7/7/2011 1:15:03 PM
The national and global system is built on the (reasonable) assumption that the US, THE AAA country at the very core of the international system, does not toy with default – technical or otherwise. If this assumption proves incorrect due to political posturing and bickering, there could well be major global dislocations.

by Mohamed.El-Erian 7/7/2011 1:15:28 PM
The hope is that Congress will agree on a package that combines a higher debt ceiling with meaningful progress towards medium-term fiscal reform. There is a lot at stake here.

by Mohamed.El-Erian 7/7/2011 1:15:43 PM
an important element of unpredictability. - Yes insightful

by JMK 7/7/2011 1:15:48 PM
Do you think commodity prices will rise through the second half of this year, into next year, and for some time next year?

by Sanjay S 7/7/2011 1:16:13 PM
Sanjay, I suspect that, over the longer term (next 5 years), we are looking at higher commodity prices. The main driver is the increasing demand from emerging economies.

by Mohamed.El-Erian 7/7/2011 1:16:44 PM
Remember, emerging economies consume a lot more commodities per unit of output than advanced countries. Because of this higher commodity intensity, their faster growth rate has a significant impact on demand.

by Mohamed.El-Erian 7/7/2011 1:16:58 PM
I would add Sanjay that this secular view is subject to two important qualifiers that also address your shorter time horizon.

by Mohamed.El-Erian 7/7/2011 1:17:14 PM

World News

Syria opposition unity talks face specter of collapse

ISTANBUL - Syrian opposition talks aimed at presenting a coherent front at an international peace conference to end the civil war faced the prospect of collapse after President Bashar al-Assad's foes failed to cut an internal deal, opposition sources said on Friday.

» More News

Mohamed El-Erian Live Q&A

World News

Syria opposition unity talks face specter of collapse

Related Topics: