Bill Gross is still bearish

Bill Gross: Avoid junk bonds and financial stocks

Fund managerBill Gross shedhis title of the"Bond King" twoyears ago, afterdeparting Pimco,the US-basedfirm that he cofoundedand builtinto one of theworld's largestasset managers. But while Gross nowpersonally manages around $1.5bn atJanus Capital, compared to overseeinga total of almost $2trn at Pimco, hisviews are no less sweeping and noless bearish than before.

The global economy has become asystem that simply "recycles financefor the benefit of financiers", ratherthan one that aims for prosperityand progress, he writes in his latestmonthly update. Growth has beenpowered by a vast credit boom: thereis $58trn in official debt outstanding inthe US today, compared to just $1trnin 1970.

Now this expansion "appearsto be reaching an ending of sorts" hence the spread of quantitativeeasing and negative interest ratesas central banks struggle to keep itgoing. If they fail, expect yet moreradical measures, such as a ban oncash note the "somewhat suspiciousuniform attack on high denominationbills of global currencies", which standaccused of aiding money laundering and even "helicopter money"(handouts from the central bank to thepublic to encourage them to spend).

"Can any/all of these policyalternatives save the system'?" Theevidence of the past few years is notencouraging: "Summer for our credit-basedfinancial system is past and ashorter winter-like solstice is in ourfuture". Avoid junk bonds and financialstocks; stick to short-term, high-qualitybonds that should be less affectedwhen rates finally begin to rise.