El-Erian: Central Banks Create Artificial Asset Prices

“The Federal Reserve and the world’s other central banks — not fundamentals — are boosting asset prices, says Mohamed El-Erian, CEO of giant money manager Pimco.

“Investors should recognize that in virtually every single market segment, we are trading at very artificial levels,” El-Erian told WSJ.com. “It’s true for bonds, it’s true for equities. . . . If these levels aren’t validated by the fundamentals, then investors will get hurt.”

In the United States, the stock market hit record highs again last week, and bond yields are near record lows.

The Fed has added more than $2 trillion to its balance sheet through quantitative easing (QE) over the past five years. And it plans to keep the federal funds rate target at zero to 0.25 percent until unemployment shrinks to 6.5 percent from 7.6 percent in March. Other central banks also are in stimulative mode, with the latest entrant the Bank of Japan….”

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