Former PIMCO CEO, now Chief Economic Adviser to Allianz SE, Pimco’s parent company, PHD in economics and Finance insider, Mohamed El Erian has an estimated net worth of some $2.3 billion. He also served 2 years as president and CEO of Harvard Management Company, the entity that manages Harvard’s endowment and related accounts, leaving at the end of 2007 to return to PIMCO, just before the Harvard endowment suffered massive capital losses in the 2008 bear market.
El-Erian seems to have learned something about the importance of protecting savings from the ravages of Fed induced asset bubbles. This week he gave an interview with the Orange County Register explaining, among other things, why he holds most of his personal wealth in cash today–not in stocks and bonds. Here is a highlight:
Q. Where is your money? Stocks? Treasuries? Bonds?
A. It is mostly concentrated in cash. That’s not great, given that it gets eaten up by inflation. But I think most asset prices have been pushed by central banks to very elevated levels.
Q. So we’re nearing a bubble?
A. Go back to central banks. Central banks look at growth, at employment, at wages. They are too low. They don’t have the instruments they need, but they feel obliged to do something. So they artificially lift asset prices by maintaining zero interest rates and by using their balance sheet to buy assets.
Why? Because they hope that they will trigger what’s called the wealth effect. That you will open your 401k, see it has gone up in price, and you’ll spend. And that companies will see their shares are going up and they will be more willing to invest. But there is a massive gap right now between asset prices and fundamentals.
See: Life after Pimco: Mohamed El-Erian for the entire interview.