Financial Repression
Investors should focus on economies with strong balance sheets that are growing, including Canada, Australia and a number of emerging market economies that are not going to impose what Pimco has dubbed financial repression, El-Erian said. Corporate bonds offer value in the U.S., he said.
"There are lots of opportunities if you understand what game is being played," he said.
In a report aimed at establishing a worldview for investors in the next three to five years, El-Erian described financial repression yesterday as the prospect of policy makers trying to force savers to accept returns below the rate of inflation as the governments grapple with budget deficits.
A fight over taxes and the scale of U.S. spending cuts between Republicans and Democrats remain the biggest obstacles to a deficit-cutting plan that Obama administration and congressional leaders say is necessary for an agreement to raise the U.S. debt ceiling.
"We've seen some progress toward mini bargains but not grand bargains," El-Erian said. "We don't need to agree on every step but let's get going before it gets worse."