Bill Gross: the danger for markets of ever-lower interest rates

Bill Gross © Scott Eells/Bloomberg via Getty ImagesBill Gross, retired fund manager

“How long can markets (and economies) breathe in an oxygen-less interest rate environment?” Bill Gross – the billionaire co-founder of giant asset manager Pimco, who was once known as the “bond king” – retired from his final berth at Janus Henderson group earlier this year. But he’s still keeping a close eye on markets. In his first investment outlook letter since his retirement, he worries about the ill-effects of ever-lower interest rates.

“It is obvious to me,” argues Gross, “that asset markets have benefited tremendously” from the current monetary environment. He reckons that “since 2009, perhaps one quarter of the 200% rise in the US market” is down to the collapse in interest rates over the same period.

The problem is, this can’t continue forever, says Gross. Central bankers – including the Bank of England deputy governor Sir Jon Cunliffe (pictured) – are starting to raise the alarm about negative rates, and their ill effects on small savers, banks, insurers and pension funds. In short, “central banks have run out of pizazz”. With monetary policy reaching the end of the line, it’s hard to see the equity bull market being sustained “in the absence of substantial fiscal stimulation” (in other words, extra government spending rather than even lower rates).

Investors should prepare for “slow economic growth globally”, as well as “an end to double-digit market price gains”. What does that mean for your money? “High-yielding, secure-dividend stocks are what an astute investor should begin to own,” says Gross.