Bill Gross of Janus Capital Group warns that global central bank policymakers have turned the financial markets into a casino. The bond investor attributes this to their unprecedented monetary policies, notes Reuters.
Bill Gross: financial markets or “a Vegas casino”?
“Our financial markets have become a Vegas/Macau/Monte Carlo casino, wagering that an unlimited supply of credit generated by central banks can successfully reflate global economies and reinvigorate nominal GDP growth to lower but acceptable norms in today’s highly levered world,” Bill Gross said during an October investment outlook released Tuesday.
Gross believes that central banks are acting increasingly like casino gamblers who double-down on bets every time they lose. It is a strategy that works as long as they can print unlimited amounts of money. With this, they aim to encourage borrowing and economic expansion, but it did not succeed at creating sustainable growth. Instead, it drove investors into increasingly risky assets as they seek higher yields, he said.
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Bill Gross said that the time comes when investors are very afraid of receiving negative or zero returns and might desert the standard financial complex for higher returns or better, yet less-risky alternatives. Ultra-loose central bank policies keep so-called “zombie” corporations alive, inhibiting “creative destruction,” and hence, they are a hindrance to global economies, the expert argues.
Gross argues that NIMs or net interest margins for banks and the solvency of insurance companies and pension funds with long-dated and underfunded liabilities have had negative impacts and that eventually, such monetary policies will result in capital destruction instead of capital creation.
Bitcoin – a safety tool against central banks
Historical business models had been designed to foster savings, investments and economic growth, but the policies that the Federal Reserve, Bank of Japan and European Central Bank create and implement are such that they destroy them, according to Gross. Gross and others have warned for the past several years that zero and negative interest rates are not able to provide an easing cushion at times when a recession occurs, and they also destroy capitalism’s business models.
Bill Gross, who runs a $1.5 billion Janus Global Unconstrained Bond Fund, believes that the investors will increasingly seek havens as they lose faith in the system. Investors might increasingly be attracted to new financial technologies such as bitcoin. They might use them as a protection against central bank low and negative interest rate policies, which are a threat to capitalism, said the billionaire bond manager.
“Bitcoin and privately agreed upon blockchain technologies among a small set of global banks are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms,” said Gross. Gold would be another example as it has been historically reliable, he believes. “In any case, the current system is beginning to be challenged.”
Bitcoin uses encryption techniques to generate new money and verify fund transfers independent of a central bank. It has Blockchain as the underlying technology. In September, two members of the U.S. Congress formed a caucus to advocate for crypto-currencies and Blockchain-based technologies, notes Bloomberg.