El-Erian’s Views on the U.S. Divergence

Global Chief Investment Officer
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Mohamed El-Erian, chief economic advisor at Allianz and senior global fellow at the Joseph H. Lauder Institute at the Wharton School, joined me and Professor Seigel on our “Behind the Markets” podcast last week. It was a great, wide-ranging conversation on why El-Erian sees a divergence for the U.S. economy over Europe and other international economies. We also discussed why he still favors the U.S. as investment destination over foreign markets. Some of the highlights of the conversation touched on the following:

  • How the U.S. economy continues outperform and diverge from the rest of the world. El-Erian sees little risk of a U.S. recession in 2020, with the consumer being the backbone of the U.S. economy.
  • El-Erian’s worries concern the health of the global economy and the uncertainty over how long the U.S. can continue to diverge from the global economy. He believes the U.S. can sustain its outperformance for some time, and he still favors investing in the United States.
  • El-Erian described recent stability in Europe’s economy as potentially being an L-shaped recovery that flatlines at 1% growth, instead of bouncing back materially higher.
  • Negative rates are encouraging increased German savings instead of more consumption.
  • El-Erian sees excessive risk-taking caused by low rates that could lead to misallocation of capital.
  • El-Erian sees low rates enabling zombie companies to stay alive, which could depress productivity figures.
  • El-Erian expects heightened volatility—he believes passive beta benchmarks made good decisions over the last five years, but he sees a rise in volatility as making a case for more dynamic market timing strategies.
  • He also views more exotic asset classes, such as emerging market debt and high-yield bonds, as ripe for helping active managers to shine; he believes active managers’ performance lagged the market in the past due to a low liquidity factor.


El Erian’s views provided an interesting contrast to Professor Siegel’s, who favors emerging markets because assets prices are already discounted to reflect risks to performance in these markets. Please listen to the full conversation below.


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About the Contributor
Global Chief Investment Officer
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Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.