Wednesday, September 9, 2015

The “Bond King” thinks we have bigger problems than China…....

The "Bond King" thinks we have bigger problems than China

"Bond King" Bill Gross thinks global financial markets are "out of whack."

Gross founded Pacific Investment Management Company (PIMCO) in 1971. Under his watch, PIMCO became the world's biggest bond fund. Today, Gross runs his own bond fund at Janus Capital.

Gross thinks almost everything is expensive right now. In a letter to his clients published Wednesday, he wrote that "equity market capital gains and future returns are likely to be limited if not downward sloping."

In other words, investors face a ton of risk right now…and not much opportunity.

Even though interest rates are close to zero, Gross still thinks investors are better off holding cash than overpriced stocks or bonds.

He blames the Federal Reserve's easy money policies for warping the economy:

The Fed is beginning to recognize that 6 years of zero bound interest rates have negative influences on the real economy – it destroys historical business models essential to capitalism such as pension funds, insurance companies, and the willingness to save money itself. If savings wither then so too does its Siamese Twin – investment – and with it, long term productivity – the decline of which we have seen not just in the U.S. but worldwide.

Gross explains that the past six years of near-zero interest rates have created a "Frankenstein" economy. He blames cheap credit for inflating both stocks and bonds to the point where there's nothing attractive to buy right now.

Gross is right. Artificially low rates have detached financial markets from reality…

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