What Bernanke's Testimony Means

The stock market is at all-time highs,but markets tend to seize on what they want to hear and run with it.A case in point is Federal Reserve Chairman Ben Bernanke's testimony before Congress last week,which was assessed by Mohmamed El-Erian,CEO of leading asset manager PIMCO.This testimony is rather dovish,Mr.El-Erian said.Bernanke was saying that 1.The unemployment situation is unsatisfactory.2.Don't worry about inflation;it is too low.3.We have a number of instruments we can use. He's trying to strike a difficult balance between confidence and excessive risk-taking.The journey is full of ifs.The market extrapolates this to the destination.Markets are different from the Fed.They want to know where we are going,and when we're going to get there.1.The unaddressed cost and risk of unconventional policies.2.You've convinced other central banks to follow you,but does it make sense if everybody does it? The underlying economy is still fragile.The fundamentals with the technicals would call for lower yields from here.1.The real economy is weak.2.Banks have reduced risk exposure,so their ability to earn is less.It will be interesting to see how sustainable their earnings are. Mr.El-Erian,who formerly managed the Harvard endowment, is also co-Chief Investment Officer of PIMCO,along with founder Bill Gross.