Financial markets are increasingly at risk
and investors should be wary of chasing yield, Bill
Gross warned in an investment outlook Tuesday.
The Janus Henderson Investors portfolio manager said that
factors including high debt levels, an aging population, and
the replacement of human labor with machines have pushed
investors to pursue gains in the financial economy
as opposed to the real economy in other
words, making money with money.
According to Gross, quantitative easing and low interest rates
have boosted returns without boosting the underlying drivers of
economic growth, such as productivity, which has risen only 1
percent annually since 2000. But asset prices and their growth
rates are ultimately dependent on the real economy,
Gross added, and money needs to be channeled into the
real economy to keep the financial economy
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, he wrote in his outlook.
The real economy has been usurped by the financial
Gross, the former bond king who left Pacific Investment
Management Co. for Janus in 2014, said that the real
economys growth rate has become stunted by
secular forces that even monetary and fiscal policies
seem unable to reverse.
Capitalisms arteries are now clogged or even
blocked by secular forces, which when combined with low
or negative yielding safe assets, promise to
stunt U.S. and global growth far below historical norms,
Soon the financial economy will be
seriously threatened, forcing investors to
acknowledge the limits of making money with money, according to
Gross, who says the ultimate winners will be those who focus on
risk reduction rather than relying on central bank policy.
Dont be mesmerized by the blue skies created by
central bank QE and near perpetually low interest rates,
Gross warned. All markets are increasingly at