Bill Gross, the co-chief investment officer of Pimco, said he thinks the stock market and "all asset prices are bubbly."
"Bond prices, stock prices ... and profit margins are bubbly to the extent that [if] any of them can be sustained, I guess, is the ultimate test," Gross said on CNBC Wednesday.
He said the Federal Reserve's QE program is a "rather blunt instrument in terms of elevating, and perhaps, bubbling stock prices."
"Margin debt is at historic levels to the extent that they want to simmer down equity prices [but] they don't have to attack it through tapering ... they can raise margin requirements."
"The bond market is bubbly because the policy rate at 25 basis points is artificially suppressed. Investors and savers are not receiving what they have historically ... in historical terms would probably be around 2 to 2.5 percent," he said.
Fed Vice Chair Janet Yellen said financial stability, along with stable prices and unemployment, was the central bank's third mandate when she accepted her nomination to become chair.
Gross doesn't foresee the bubble popping anytime soon because the Fed's "policy rate at 25 basis points is going to be guided forward by the Yellen Fed for the next two, three or perhaps even four years."
He noted that the stock market's growth rate depends on the economy and if the Fed's bond-buying policy "can generate 2 to 3 percent growth ... then profits expand." Gross added that if they can't, then the stock market has a more difficult problem ahead of it.
—By CNBC's Karma Allen