VOICES

It is getting to be that time of year when nearly everyone will have an opinion on what markets will do in 2016. On the one hand it's pretty obvious what you have going on, as pointed out below, central banks pushing and pulling in opposite directions.

The three areas El-Erian mentions share certain commonalities. A drop off in demand affects all three. Much of emerging markets depends on what commodities do and vice versa. And when times are good, like the recent fracking frenzy, lots of high yield bonds get floated. So demand slowdowns don't go down easy in these sectors.

Allianz Chief Economic Adviser Mohamed El-Erian said Thursday the new paradigm for financial markets in 2016 is divergence.

 
"Are divergent central banks ... still able to repress the volatility that comes from geopolitics ... [and] economics? That is going to be the great question," the former Pimco co-CEO told CNBC's "Squawk Box.

"Central banks are no longer on the same side," El-Erian said. "The Fed is going to be easing its foot off the stimulus accelerator [while] the ECB, the Bank of Japan, and the People's Bank of China are going to be pressing harder on the stimulus accelerator."

The Federal Reserve next week is expected to deem the economy and job market strong enough to withstand the first hike in short-term interest rates in nine years. The fed funds overnight lending rate has been near-zero percent since December 2008 in the wake of the financial crisis. The Fed meets on Tuesday and Wednesday, followed by the release of a summary of economic projections and a news conference from central bank chief Janet Yellen.

In a separate interview, David Blitzer, chairman of the S&P Dow Jones index committee, told "Squawk Box" that a Fed rate hike would be "more relief than cataclysmic."
"It's got to be one of the most anticipated Fed rate increase in modern times," he said.
In recent years, El-Erian said, "central banks delivered the three things that investors like most: high returns, low volatility and favorable correlations." 

"[But] now that central bank effectiveness is in doubt, all three are moving," he said. "That's where the tactical opportunities come. But you have to be really, really nimble in this environment."


El-Erian was wary of the current investing climate because of what he calls "unhinged markets" in three areas: commodities, emerging markets currencies and high-yield bonds. 

cnbc.com/2015/12/10/heres-the-new-paradigm-for-2016-mohamed-el-erian.