El-Erian: Will Be Great Year for Right Stocks, but Have Cash Too

During an interview on the FOX Business Network’s Mornings with Maria, Allianz Chief Economic Advisor Mohamed El-Erian said volatility will create some very interesting market conditions this year.

“I think this year will be a great year for those who can pick the right stocks -- and there’s going to be lots of opportunities. I still think you need cash-- you need 25% to 30% cash right now… valuations have been decoupled, so be careful.”

According to El-Erian, asset prices will be a key factor in driving the markets.

“The key issue is for fundamentals to validate asset price… The Federal Reserve has forced people to take more risks. By lowering interest rates so low, they’ve literally pushed people into risk assets.”

He also gave advice on investing in specific companies.

“Bet on companies that have balance sheets that allow them to do two things. One, have the resilience to deal with the possible economic downturn and second, the agility to pounce, as companies tend to do when opportunities arise.”

Although he’s worried about Europe’s economy, he sees value in some emerging markets.

“If you want to pick up value and you really have the stomach for volatility, the most value right now is in some emerging markets, but be selective, don’t do it through an ETF because when you buy an ETF you’re going to end up buying bad names as well,” he said.

When asked whether the U.S. will go into a recession he said, “ [I]Put the chances for next year at about 30%... We never achieved liftoff. We never got to what this economy is capable of -- and that’s a tragedy.”