Bill Gross fund manager, and co-founded Pacific Investment Management Co. PIMCO’s with $1.51 trillion in assets under management is somewhat bleak about the market’s outlook.
For Bill Gross, it’s the market’s last dance. “The stock market is like an old age retirement community”
“The stock market is like an old age retirement community”
The mega fund managers believe that the stock market’s best days are behind it as central banks take away their high levels of stimulus.
So for Bill Gross it the market’s last dance because there is nowhere to run, nowhere to hide.
“Prior market tops (1987, 2000, 2007, etc.) allowed asset managers to partially “ensure” their risk assets by purchasing Treasuries that could appreciate in price as the Fed lowered policy rates. Today, that “insurance” is limited with interest rates so low”, said Bill Gross.
Should a crisis arise because of policy mistakes, geopolitical crises, or other currently unforeseen risks, the ability to protect principal will be impaired relative to history. That, in turn, argues for a more cautious and easier Fed than otherwise assumed imbalances from external shocks like oil prices, added Bill Gross.
“Our entire financed-based system is anchored and captained by banks”
“Our entire financed-based system is anchored and captained by banks,” said Bill Gross. “It is based on carry and the ability to earn it,” he added. When that breaks Bill Gross believes it will be the market’s last dance.
“When credit is priced such that carry can no longer be profitable (or at least grow profits) at an acceptable amount of leverage/risk, then the system will stall or perhaps even tip,” he said.
Bill Gross warns, “We may be approaching such a turning point, so invest more cautiously.”
So for Bill Gross its a liquidity concerns that could hasten the market’s last dance
when the possibility of default increases and/or the real return on credit or liquidity decreases and persuades creditors to hold classical “money” (cash, gold, bitcoin), then the financial system as we know it can be at risk. Put another way credit shrinks and “money” increases, which creates a liquidity squeeze.
Someone asked me recently what would happen if the Fed could just tell the Treasury that they ripped up they’re $4 trillion of T-bonds and mortgages.
“Just Forget about it! I responded that is what they are effectively doing. “Just pay us the interest”, the Fed says, “and oh, by the way, we’ll remit all of that interest to you at the end of the year”.
But that is extend and pretend debt which is unsustainable.
For Bill Gross, it’s the market’s last dance.