What Does the ‘Wall of Money’ Mean for Your Investments?

Whether stocks, bonds, real estate, or art, asset prices were either at record levels or heading higher. Some commentators say this is because central banks—seeking to fight off a full-fledged meltdown—unleashed so much cash into the financial system that we’ve built a gigantic “wall of money” searching for yield.

A couple of suggestive data points: Go to {FED <GO>} on the Bloomberg terminal, click on the Balance Sheet and Security Purchases button, and select Fed Balance Sheet. You can see how the Federal Reserve’s quantitative easing—which aimed to push down longer-term interest rates by buying bonds—swelled its balance sheet. Next, add up the balance sheets of the Fed, the European Central Bank, the Bank of Japan, and the People’s Bank of China, and you get a total of more than $20 trillion. That’s equivalent to about 22 percent of the world’s total outstanding bonds or about 25 percent of global equities. It’s a lot of money.