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CNBC TRANSCRIPT: MOHAMED EL-ERIAN, PIMCO CEO & CO-CIO, ON CNBC'S "SQUAWK BOX" TODAY, FRIDAY, AUGUST 14TH AT 8:30AM ET

WHEN: TODAY, FRIDAY, AUGUST 14TH AT 8:30AM ET

WHERE: CNBC'S "SQUAWK BOX"

Following is the unofficial transcript of a CNBC interview with Mohamed El-Erian, PIMCO CEO & CO-CIO, today on CNBC's "Squawk Box" at 8:30AM ET.

All references must be sourced to CNBC.

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QUICK: WELCOME BACK, EVERYONE. OUR NEXT GUEST IS LOOKING FOR THE MARKETS TO COME OFF WHAT HE IS CALLING A SUGAR HIGH THEY'VE BEEN ON RECENTLY. JOINING US FROM NEWPORT BEACH IS MOHAMED EL ERIAN, PIMCO'S CEO AND CO-CIO. YOU'VE BEEN CALLING THIS A SUGARHIGH. WHAT DO YOU MEAN?

EL-ERIAN: WHAT I MEAN BY THAT IS THAT THE MARKET HAS GOTTEN WAY AHEAD OF THE REALITY ON THE GROUND. JUST TO PARAPHRASE WHAT ART CASHIN SAID ON YOUR SHOW YESTERDAY, THE MARKET AND ECONOMICS ARE NOT RECONCILED RIGHT NOW. THINK OF IT IN TERM OF THE ANALOGY THAT BILL GROSS BROUGHT UP YESTERDAY IN A PIMCO INVESTMENT COMMITTEE. THE MARKET IS LOOKING AT THE ECONOMY, ON A ROCKET. THIS ROCKET IS MEANT TO TAKE THE ECONOMY TO A HIGHER LEVEL OF GROWTH AND EMPLOYMENT. THE FIRST BOOSTER CAME IN THE FORM OF ENORMOUS MONETARY AND FISCAL STIMULUS. THE SECOND BOOSTER THAT WE'RE GOING THROUGH NOW IS THE INVENTORY CYCLE. THAT'S GOING TO HELP THE GDP NUMBERS OVER THE NEXT QUARTER. THEN WHAT? THE THEN WHAT NEEDS FINAL DEMAND. NEEDS THE CONSUMER.NEEDS SPENDING. NEEDS INCOME. AND IF YOU LOOK AT YESTERDAY'S EMPLOYMENT NUMBER, IF YOU LOOK AT YESTERDAY'S RETAIL SALES NUMBER, IT SUGGESTS THAT IS STILL SLUGGISH. SO WE ARE YET TO SEE A DURABLE AND SUSTAINABLE RECOVERY, BUT THE MARKET HAS GOTTEN AHEAD OF THE PURPOSE BY PRICING THAT IN.

QUICK: YOU STILL HAVE A LOT OF STIMULUS COMING FROM THE GOVERNMENT NEXT YEAR. IN FACT, THE BULK OF THE FEDERAL STIMULUS PACKAGE HASN'T EVEN KICKED IN YET.

EL-ERIAN: THE KEY STIMULUS HAS COME TO -- INTO THE CONSUMER. A COLLEAGUE OF OURS SELMA PARKER LOOKS AT DISPOSABLE INCOME VERSUS REAL INCOME. YOU SEE DISPOSABLE INCOME HAS GONE UP BECAUSE OF THE STIMULUS BUT THE REAL INCOME OF PEOPLE IS STAGNATING. SO DON'T UNDERESTIMATE HOW MUCH STIMULUS HAS ALREADY MADE IT TO THE CONSUMER AND THAT HAS HELPED ENORMOUSLY IN THE LAST FEW MONTHS. I'M NOT SURE THAT IF YOU LOOK INTO THE THIRD AND FOURTH QUARTER YOU GET AS MUCH STIMULUS IMPACT ON THE ECONOMY. THAT'S A CONCERN.

KERNEN: YOU MENTIONED CASHIN AND WHAT HE SAID. WE HAD BERINI ON, LARRY HAD HIM ON, HE'S LOOKING FOR 1700 ON THE S&P. HE SAID THAT IF YOU USED THE COINCIDENT INDICATORS OR JUST USED THE -- YOU KNOW, THE CONSENSUS THINKING AT ANY POINT IN TIME, IF YOU USE THAT TO MAKE MARKET DECISIONS, YOU'D BE ALWAYS BEARISH.

QUICK: 1700 NOT THIS YEAR BUT OVER THE NEXT THREE YEARS.

KERNEN: OVER THE NEXT THREE YEARS. YOU WOULD ALWAYS BE BEARISH. THAT'S WHY YOU'RE NEVER RIGHT. IF YOU USE WHAT'S HAPPENING RIGHT NOW, YOU KNOW, IT WILL NEVER WORK AND THE MARKET TRADESUP FOR A TOTALLY DIFFERENT REASON.1700 WITHIN TWO OR THREE YEARS JUST BASED ON THINGS WE HAVE NO IDEA ABOUT RIGHT NOW. I MEAN, IT SOUNDS LIKE YOU'RE FIXATED ON THIS SUGAR HIGH ON COINCIDENT INDICATORS.

EL-ERIAN: NO, JOE, I'M LOOKING FORWARD. I'M SEEING THE HIGH FREQUENCY DATA HAS BEEN ACTED AS A HEAD FAKE FOR MANY IN THE MARKET.WE'RE LOOKING FORWARD TO 2010. WE'RE VERY MUCH LOOKING FORWARD. THAT'S WHAT PIMCO DOES, LOOKS FORWARD IN 2010 AND SAYS OUR CURRENT VALUATIONS WARRANTED BY WHERE THE ECONOMY -- WHERE INVESTORS ARE LIKELY TO GO? THINK ABOUT IT AT THE LEVEL OF A COMPANY. YES, WE'VE HAD HIGHER THAN EXPECTED PROFIT GROWTH. BUT WHY?IT'S ALL COME FROM THE COST SIDE?IT HASN'T COME FROM THE REVENUE SIDE. THE WALMART NUMBERS WERE THE SAME YESTERDAY.THERE'S A LIMIT TO HOW MUCH YOU CAN SQUEEZE FROM THE COST SIDE. JOE, PIMCO'S ALL ABOUT LOOKING FORWARD. WE OFTEN GET ACCUSED OF, TOO EARLY, NOT TOO LATE AS YOU ACCUSE US, BUT TOO EARLY IN TERMS OF OUR EVALUATION. BUT THIS IS ALL ABOUT LOOKING FORWARD

KERNEN: AND YOUR A BOND HOUSE, THOUGH. WE'RE TALKING ABOUT EQUITIES HERE.

EL-ERIAN: ONE DAY I'LL CONVINCE YOU WE'RE AN INVESTMENT HOUSE.

IVANKA TRUMP: MOHAMED, HOW ARE YOU?

EL-ERIAN: VERY GOOD.

TRUMP: HOW DO YOU RATIONALIZE WHAT GEITHNER WAS SAYING IN HIS INTERVIEW WITH "THE WALL STREET JOURNAL"? I DON'T KNOW HOW HE CAN SAY A SIGNIFICANT AMOUNT OF RISK IS NOW OUT OF THE SYSTEM AND THAT -- AND THAT THINGS WILL BE SORT OF MONTH POSITIVE AND ON A GOING FORWARD BASIS. TO ME THEY'RE STILL, LIKE YOU SAID, A TREMENDOUS AMOUNT OF RISK IN THE SYSTEM AND THE OTHER SHOE HASN'T DROPPED YET.

EL-ERIAN: YEAH. AS TO WHAT HE SEES, WHICH IS REGULATED BANKING SYSTEM, HAS BEEN DE-RISKED.HE TALKS ABOUT THE AMOUNT OF LEVERAGE, MUCH LESS, WHICH ALSO MEANS THE AMOUNT OF CREDIT GOING OUT IS MUCH LESS. WHAT HE SEES IS THE FORMAL BANKING SYSTEM.WHAT YOU SEE, IVANKA, AND YOU SPOKE ABOUT EARLIER TODAY, IS WHAT'S HAPPENING IN COMMERCIAL REAL ESTATE, THE DIFFICULTY OF RENEGOTIATING CONTRACTS THAT NO LONGER MAKE SENSE IN THIS NEW WORLD. AND YOU SEE SOMETHING VERY DIFFERENT. YOU SEE SOMETHING THAT'S THE DAY-TO-DAY OF TRYING TO KEEP PEOPLE IN COMMERCIAL REAL ESTATE, OF TRYING TO KEEP PEOPLE IN RESIDENTIAL REAL ESTATE THAT'S OUTSIDE THE FORMAL BANKING SYSTEM. AND WE HAVE THIS TWO-SPEED ECONOMY WHERE ON THE ONE HAND THERE'S BEEN A LOT OF PROGRESS MADE IN DE-RISKING THE BANKING SYSTEM BUT THERE'S STILL A LOT OF RISK OUT THERE IN OTHER SECTORS THAT HAVEN'T YET BEEN RESOLVED.

QUICK: EARLIER THIS WEEK THERE WERE A LOT OF PEOPLE POSITING THAT THE DOLLAR WAS DUE FOR A BIG JUMP, MAYBE 15%, BUT WE'VE WATCHED IT WEAKEN OVER THE LAST SEVERAL SESSIONS, AND THIS MORNING AT THE LOWEST LEVELS IN A WEEK AGAINST THE YEN.SHOULD WE WORRY ABOUT THE DOLLAR?

EL-ERIAN: THAT'S A CRITICAL POINT. NO ONE WANTS TO SAY IT OUT LOUD BUT A WEAKER DOLLAR OVER TIME IS PART OF THE GLOBAL SOLUTION.IT ALLOWS A SHIFT, THE REBALANCING THAT EVERYBODY NEEDS. IT ALLOWS ASIA, IN PARTICULAR, TO CONSUME MORE AND ALLOWS THE U.S. TO PRODUCE MORE. SO A LOWER DOLLAR OVER TIME WOULD FACILITATE THAT. THE PROBLEM IS THAT IT NEEDS TO BE AN ORDERLY PROCESS. IT NEEDS TO GO DOWN SLOWLY. IF IT GOES DOWN TOO FAST, IT WILL BE DISRUPTIVE. I THINK IT'S GOOD NEWS THAT YOU'RE GETTING A GRADUAL REDUCTION IN THE VALUE OF THE DOLLAR. IT'S PART OF THE GLOBAL SOLUTION. WE JUST HAVE TO MAKE SURE IT REMAINS ORDER EARLY.

KERNEN: I KNOW YOU DON'T GET THE JOURNAL, WHAT DID YOU TELL ME, UNTIL 9:00 OUR TIME.I'M NOT GOING TO ASK YOU ABOUT BILL GROSS'S NEW HOUSE, EVEN THOUGH IT'S IN THERE. I AM GOING TO ASK YOU ABOUT THE NOTION THAT FRANCE AND GERMANY ARE GOING TO RECOVERY --OR ARE RECOVERING MORE QUICKLY THAN US THIS TIME AROUND. IS THAT REAL? WILL IT BE LONG LASTING? WOULD IT BE DIFFERENT FROM PREVIOUS RECOVERS?

EL-ERIAN: JOE, THIS IS KILLING YOU. THIS IS THE FOURTH TIME YOU RAISED IT THIS MORNING.I CAN SEE IT'S ABSOLUTELY KILLING YOU.

KERNEN: AND YOU WENT TO SCHOOL OVER IN ENGLAND. I KNOW. I KNOW THAT.

EL-ERIAN: I WENT TO SCHOOL IN PARIS, SO, YOU KNOW, I KNOW THIS IS KILLING YOU.

KERNEN: YOU'RE A REVERSE ZENOPHOBE. I KNOW THAT BUT WITH THAT IN MIND GO AHEAD.

EL-ERIAN WHAT GERMANY AND FRANCE ARE BENEFITTING FROM ARE WHAT THE UNITED STATES IS BENEFITING FROM A MASSIVE STIMULUS BUT THEY HAVE TWO OTHER ADVANTAGES WHICH HAS ALLOWED FOR FASTER PICK UP. THEY DON'T HAVE AS MUCH LEVERAGE AND THEY'RE MORE EXPOSED TO ASIAN GROWTH. ASIAN GROWTH HAS BEEN QUITE BORING RECENTLY. WHAT YOU'RE GETTING IS A BOUNCE IN GERMANY AND FRANCE BUT THE QUESTIONS OUT THERE ARE THE SAME AS THE QUESTIONS OUT HERE WHICH IS, IS IT SUSTAINABLE? MORE GENERALLY, JOE, THINK GEOGRAPHICLY. AS YOU GO EAST FROM NY TO THE UK TO CHINA --

KERNEN: BETTER AND BETTER.

EL-ERIAN: YEAH. BECAUSE THE INITIAL CONDITIONS WERE NOT AS BAD. THERE WASN'T AS MUCH DEBT IN THE SYSTEM WHEN THEY WENT INTO THE RECESSION. THE RECESSION.

TRUMP: GERMANY AND FRANCE CONTINUINGTO SUBSIDIZE THESE AND CONTINUING TO SORT OF BULLYING UP THEIR ECONOMIES -- ARE THEY TALKING ABOUT SORT OF SECOND STIMULUS AS WE ARE AS WELL?

EL-ERIAN: THEY ARE LOOKING AT IT, SLOW ON THE FISCAL SIDE BECAUSE THEY HAVE MORE CONSTRAINTS THAN WE HAVE HERE. WE HAVE HERE AN ABILITY TO MOVE MUCH FASTER ON MONITORING PHYSICAL POLICY. THEY ARE GOING TO HAVE TO DEAL WITH THE SAME QUESTION AS HERE WHICH IS WHEN YOU GET EMPLOYMENT AND WAGE GROWTH IN ORDER TO SUSTAIN A RECOVERY.

QUICK: THANK YOU FOR JOINING US THIS MORNING.


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