What does Erian mean that "You allocate uses of funds with sources of funds. And if you price that well, you get an efficient outcome."? Outcome to what?
What does he mean the stock markets "destroy the efficient allocation of capital across the country"?
Can you distinguish between these "two most important roles"? How does resource allocation differ from price signalling? El-Erian talk them separately.
I quote this Jun 17 2020 CNBC interview starting at 9:02 at Youtube.
So I think we should be worried not just about zombie companies, but zombie markets. Zombie markets, a market that are completely mispriced. They're completely distorted. Why? Because there is a policy view that we need to subsidize everything in markets for now.
So what happens when you get these conditions? The two most important roles that markets play, and we are a market based system and part of the success of America is, the market system.
One, they allocate resources. So think of the stock market. You allocate uses of funds with sources of funds. And if you price that well, you get an efficient outcome. So the first thing you do is you destroy the efficient allocation of capital across the country.
So the second thing you do is, is you destroy the price signal. So people no longer care about fundamentals.
The next question isn't relevant, but I'll quote it just so you know.
10:07 Does the globalization piece fall on the companies then? 10:11 Because companies are seemingly the ones who are saying we're going to move our supply chains back. They are getting pressure from people in Washington to do so as well. So whose job is it to try to address the fallout and how to make that even happen in the first place?
I think Mohamed El-Erian is a reliable authority on economics.
1985: DPhil economics, University of Oxford
1982: MPhil economics, University of Oxford
1980: BA economics, University of Cambridge
From next year: President of Queens’ College, University of Cambridge
2019 to present: Senior adviser to Gramercy Funds Management
2015 to present: Chief economic adviser, Allianz management board; chairman
2007-14: CEO and co-CIO, Pimco
2006-07: CEO and president, Harvard Management Company
1999-2006: Managing director, portfolio manager and head of emerging markets, Pimco
1998-99: Managing director and European head of emerging markets, Salomon Smith Barney
1983-97: Various positions, IMF