Bill Gross: Don’t ignore the risks

Livewire News

Bill Gross, the founder of PIMCO (now with Janus Henderson) who’s known as 'The King of Bonds' issued a note overnight entitled “How to make money.”

KEY POINTS

  • Because of secular headwinds facing global economies investors have resorted to “making money with money” as opposed to making money with capital investment in the real economy.
  • Investors have made money by extending maturity and risk. “Savers/investors exchange cash for alternative choices involving less liquid, longer maturity, and in some cases more risky assets.”
  • While investors have been making “money with money” productivity has only increased by 1% since the year 2000.
  • $8TN of Quantitative Easing and Asset Purchases by Central Banks has made this strategy extremely profitable. “Investors have discovered that making money with money is a profitable enterprise and have exchanged the support of central banks for the old-time religion of productivity growth as a driver of their strategy. The real economy has been usurped by the financial economy.”

BUT KEEP IN MIND...

However Gross warns that “asset prices and their growth rates are ultimately dependent on the real economy and, the real economy’s growth rate is stunted by secular forces which monetary and even future fiscal policies seem unable to reverse.” He says that monetary policy may now event be a negative influence as it’s keeping “zombie corporations” alive when they should be out of business.

CONCLUSION

Gross concludes by saying that investors must recognise this risk and not be mesmerised by the “blue skies” created by Central Bank QE and perpetually low interest rates. “All markets are increasingly at risk.”

“Money will currently be made, or at least conservatively preserved, by acknowledging the exhaustion of “making money with money”. Strategies involving risk reduction should ultimately outperform “faux” surefire winners generated by central bank printing of money.”

Original article: https://en-us.janushenderson.com/retail/make-money/


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