Fed has thrown everything at coronavirus slowdown: El-Erian
JPMorgan: $850B in buying power ready to flow into stocks
Allianz chief economic adviser Mohamed El-Erian discusses a report from JPMorgan saying there is a big rebalancing flow from the buy-and-hold crowd.
The Federal Reserve has committed to doing whatever it takes to support the U.S. economy in the wake of the COVID-19 pandemic, according to Mohamed El-Erian.
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The central bank on Monday announced unlimited asset purchases and three new lending facilities that will provide up to $300 billion in new financing to support the flow of credit to employers, consumers and businesses.
“It took time, but they have thrown everything at it,” El-Erian, chief economic adviser at Allianz Global Investors, told FOX Business’ Maria Bartiromo on Tuesday morning. “By that, I mean not just general policies, but also measures directed at trying to contain market malfunction, which you and I know is absolutely key to this recovery.”
He added that the Fed’s action will “contain the financial damage” and the “risk of finance.”
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As part of its plan, the Federal Reserve will use $30 billion from its Treasurys Exchange Stabilization Fund to buy corporate securities and lend to businesses with 10-to-1 leverage. Additionally, the passage of a third stimulus package by Congress could set aside $400 billion in Fed collateral to be used as a so-called bazooka to combat a deep slowdown.
El-Erian says we don’t want to “fire the bazooka,” but instead use it to “give reassurance to private markets to come back in.”
He added that it’s important to think about what the “post-crisis landscape” will look like and that it's undesirable for the Fed to “have a ton of credit risk on its balance sheet.” Credit risk is the potential for loss due to a borrower's failure to repay.
As for the stock market, El-Erian sees continued volatility as uncertainty remains high. He is, however, “dipping his toes” into names with strong balance sheets, lots of cash and little debt.
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“There's a few names out there, but I don't think it's time yet,” El-Erian said. “The time will come. But I don't think it's time yet to just buy the market.”
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