One of the world’s largest asset managers says it’s time for the U.S. Federal Reserve to enter the stock market…

Joachim Fels is global economic adviser for Pacific Investment Management Company (PIMCO). PIMCO has $1.52 trillion in assets under management.

Fels believes more quantitative easing (QE)—banker speak for money printing—is needed to stimulate global economic growth. He says the “benefits” of QE are already proven… whereas central banks’ current negative interest rate policy (NIRP) experiments have had more muted effects.

[One wonders how much PIMCO’s new senior adviser—former Fed chair and QE trailblazer Ben Bernanke—played a role in Fels’ views…]

  As we noted last week, once central banks become “the shareholder of last resort,” the jig is almost up. It’s a sign of a total breakdown in the free market pricing mechanism…

With QE, central banks use their unlimited “printing press” to purchase assets. The banks always begin with the “safest” assets—sovereign bond purchases. But years of QE around the globe has dried up liquidity in these markets…

Take Japan. The Bank of Japan (Japan’s central bank) is on track to own over 60% of all Japanese government bonds (JGBs)… in under 18 months. The size of Japan’s bond market is almost $10 trillion.

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But the Bank of Japan is still buying more. It’s moved into corporate bonds and even into the Japanese equity markets.

Bloomberg reports the BOJ’s moves have sent volatility soaring to 17-year highs. And as we’ve noted, “flash crashes” are the new normal.

Now American financial leaders like Joachim Fels want to bring Japan-style expanded QE back home…

Bottom line: If the U.S. Federal Reserve commits to direct equity purchases, share prices may skyrocket. But that doesn’t mean the real economy will improve…

It’s why we maintain diverse asset allocation. We hold gold and cash to protect ourselves from a major market decline. But we also hold select stocks and bonds from the best companies on Earth.

The mixture keeps us protected in any market environment. It’s our best safeguard in a world of increasing financial disarray…

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