We’re heading into a safer financial world with less risk-taking, lower returns, and repressive financial policies according to Bill Gross, who recently went on Bloomberg Surveillance to discuss the Federal Reserve’s decision to hold off on tapering.

Bill Gross

Bill Gross’ expectations for the future of banking

Bill Gross, who runs the world’s largest bond fund for Pacific Investment Co (PIMCO), expects that in the future banks will have more capital as regulatory agencies and clients both push them towards less risky portfolios and less downside, as we enter a period of low interest rates at the expense of potentially high inflation.

“Ben Bernanke has metaphorically left the building. We’re living in a Yellen world, and Yellen is a dove with a capital D,” said Bill Gross. With Larry Summers out of the picture, Gross thinks we should be looking to Yellen when predicting what the Fed will do next. He expects that her confirmation to take about a month, during which not much will happen at the Fed, and that tapering will start once she takes office as Fed chair some time in December.

Interest rates to go more higher

But even after tapering ends a year from now, Bill Gross doesn’t think Yellen will allow interest rates to go as high as the rest of the market does. “It’s a financially repressive period,” says Bill Gross. “The ability of a saver to earn something on their money relative to inflation is going to be repressed and challenged.”

Fortunately, the legendary bong trader has some choice advice for people who are still in the bond market.

“Place less emphasis on duration because that’s what’s being repressed in terms of yields,” he advises. “Place more emphasis on spread, more emphasis on volatility, currency and yield curve roll down. So this repression can be beaten, we can escape from jail… but it starts with recognizing that the fed is trying to repress savers.”

PIMCO, along with most other bond funds, has seen big outflows over the last few quarters, as Bill Gross acknowledges, but he says that “the bleeding has stopped” and that there is normally a one or two month delay between improved performance and strong inflows, which he expects to pick up in the near future.