El-Erian: Markets Can Rally on Bernanke Testimony

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July 17 (Bloomberg) -- Mohamed El-Erian, chief executive and co-chief investment officer at PIMCO, explains why Ben Bernanke's written testimony to the House Financial Services committee should fuel the market rally and offers his thoughts on what bank earnings tell us about the U.S. economy. He speaks on Bloomberg Television's "In The Loop."

To go today is really important.

That is when he gets pressed.

If you were to press a pause button here on the policy issues, you will see the market's continuing to rally, yields coming down.

As a recognition that the markets overreacted to perceptions of a change in liquidity paradigm.

It took the tapering too far.

It is walking back the notion of destination.

Q&a will be critical.

That is where he gets pressed.

He will be asked to provide more details.

We will pay very close attention.

Take a right.

That is where we of seen him contradict himself.

-- where we have seen him contradict himself.

This this mean we could go back to the lows we saw earlier this year in see equity markets continue to rally to record highs?

My colleague and founder, bill gross has said a 2.2010- year is not out of the question at all.

That would be a normalization from what has been an overshoot.

I think there is another critical issue, which is the market is a obsessed with liquidity paradigm and how central banks are maintaining liquidity.

Do not forget fundamentals.

The data out this week confirmed gdp for the second quarter may be as low as 1%. the underlying economy, the u.s. and china and europe is still quite fragile.

If you put the fundamentals with the technicals, they would call for lower yields.

Just going from ben bernanke come up before i let you go, i want to ask you about the earnings season so far and what you've seen from the banks.

You have big bang speeding profit estimates.

-- big banks beating profit estimates.

Did they tell you about the health of the economy?

They tell us there are drivers that have helped banks in the second quarter.

That is really what they tell you.

One is the real economy is weak.

The second thing is do not forget the banks have reduced risk exposure.

The ability to earn has come down as a result.

Keep an eye on this.

It will be an interesting question to see how -- it will be interesting to see how sustainable these are.

This text has been automatically generated. It may not be 100% accurate.

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