El-Erian: Most of My Money Is in Cash

Where is economic guru and famed money manager Mohamed El-Erian putting his money these days? In cash.

In a wide-ranging Sunday interview with the Orange County Register, the chief economic advisor to PIMCO’s parent, Allianz SE, also opened up about his beliefs that the wealthy should pay more in taxes and that the current “do-nothing” Congress is unable to create a “Sputnik” moment for the economy.

Rising at 3:30 a.m. to work on his new book, whose working title is “The Only Game in Town: The Rise and Possible Fall of Modern Central Banking and What it Means For You,” the 56-year-old said that his wealth is mostly concentrated in cash, not stocks, bonds or Treasuries. “That’s not great, given that it gets eaten up by inflation,” he admitted. “But I think most asset prices have been pushed by central banks to very elevated levels.”

When asked if the U.S. were “nearing a bubble,” El-Erian noted that the 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,” he responded. “That you will open your 401(k), 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.”

El-Erian, who also chairs President Barack Obama’s Global Development Council, also noted that income inequality “has risen so much that consumption as a whole is undermined. That’s because rich people have a much lower propensity to consume than poor people.”

It is the rich people, he said, “that have captured all the income growth for the last seven years.”