Bill Gross has long been considered a Bond King, until recently the fund manager at Pimco Total Return which is the largest Bond Fund in the world. He has been a media celebrity since the mid 1980’s, and had a well publicized falling out with Pimco which tarnished his legacy.
I have always found his opinions on markets worth listening too – and his latest published outlook on where we are headed strikes an interesting tone. Gross is now at Janus Funds, where he appears to have editorial license to say what he wants. Perhaps because he is turning 70 years old he is overly gloomy, but he obviously doesn’t like what he sees down the road.
A few excepts from his letter:
On the current world view that Quantitative Easing will cure the world debt crisis:
(At a recent conference) I equated such a notion with a similar real life example of pouring lighter fluid onto a barbecue of warm but not red hot charcoal briquettes in order to cook the spareribs a little bit faster. Disaster in the form of burnt ribs was my historical experience. It will likely be the same for monetary policy, with its QE’s and now negative interest rates that bubble all asset markets.
On the end of the financial bull Market:
When does our credit based financial system sputter / break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress. We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion.
He makes an interesting point about fees charged by investment professionals:
Active asset managers as well, conveniently forget that their (my) industry has failed to reduce fees as a percentage of assets which have multiplied by at least a factor of 20 since 1981. They believe therefore, that they and their industry deserve to be 20 times richer because of their skill or better yet, their introduction of confusing and sometimes destructive quantitative technologies and derivatives that led to Lehman and the Great Recession.
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