Fund manager Bill Gross shed his title of the “Bond King” two years ago, after departing Pimco, the US-based firm that he cofounded and built into one of the world’s largest asset managers. But while Gross now personally manages around $1.5bn at Janus Capital, compared to overseeing a total of almost $2trn at Pimco, his views are no less sweeping and no less bearish than before.
The global economy has become a system that simply “recycles finance for the benefit of financiers”, rather than one that aims for prosperity and progress, he writes in his latest monthly update. Growth has been powered by a vast credit boom: there is $58trn in official debt outstanding in the US today, compared to just $1trn in 1970.
Now this expansion “appears to be reaching an ending of sorts” – hence the spread of quantitative easing and negative interest rates as central banks struggle to keep it going. If they fail, expect yet more radical measures, such as a ban on cash – note the “somewhat suspicious uniform attack on high denomination bills of global currencies”, which stand accused of aiding money laundering – and even “helicopter money” (handouts from the central bank to the public to encourage them to spend).
“Can any/all of these policy alternatives save the ‘system’?” The evidence of the past few years is not encouraging: “Summer for our credit-based financial system is past and a shorter winter-like solstice is in our future”. Avoid junk bonds and financial stocks; stick to short-term, high-quality bonds that should be less affected when rates finally begin to rise.