Mohamed el-Erian just hit on a huge contradiction in the market

LOS ANGELES — Allianz’s Mohamed El-Erian just flagged a big contradiction in financial markets.

While the stock market is hitting record highs, the bond markets are raising concerns, El-Erian said Monday at the Milken Institute Global Conference held at the Beverly Hilton.

“The optimism is off the charts according to the stock market but the geopolitics are a real concern,” he added. “So I think part of the puzzle is how can we have all these contradictions together and how does optimism prevail over these other signals?”

El-Erian, the chief economic adviser at giant asset management Allianz, isn’t the only person to flag the contrasting signals from the stock market and the bond market.

“The real debate is about what the rally in bonds is telling us and whether equities are on a different planet,” JPMorgan strategists said in a note in late April. “We stay with our bearish bond view, recognising there is a true battle of the minds going on whether to follow bonds or equities.”

Here’s what else El Erian said:

  • On the Federal Reserve: “We need the Fed to normalize. The unintended consequences of running unconventional policies for too long can become a problem in itself.” He expects two more interest rate hikes this year, for a total of three.

  • The dollar: “We need Europe to step up the to the plate … if that happens, then both areas (US and Europe) grow together , the dollar doesn’t become a major problem. If Europe lags then the dollar itself can become a major headwind.”

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