Bill Gross is Literally Laughing at the Stock Market
Bill Gross is having a laugh at those who support U.S. stock market investment, according to a recent tweet.
The bond market expert and pundit took to Twitter on Tuesday morning, apparently poking fun at people who see stock market investment as the only choice available to them.
But Gross is no stranger to brash statements, having a long history of such remarks.
In a monthly statement in early September, the bonds guru essentially put out a doom and gloom report, highlighting economic woes and hinting at a possible stock market crash. (Source: Business Insider, last accessed September 30, 2015.)
According to Bill Gross, global fiscal policy is neither constructive nor contributes to economic growth, and is not likely to be in the future either. If current trends continue, then capital gains from equities returns on futures will be increasingly more limited. The issue is that higher quality bond markets offer less of a reward compared to those based on durational risk. But returns based on private equity cannot sustain themselves if global economic growth remains weak.
If Not Stocks, Then What?
Surprisingly, he advises holding on to liquid cash, or at the very most, “near-cash” assets such as one-to-two-year corporate bonds. (Source: Business Insider, last accessed September 30, 2015.) Gross contends that such options offer the best balance of risk and reward.
Now, critics might say that Gross is ignoring how short-term bonds offer very little return, and cash depreciates in value due to inflation. But Gross offered up a quote once uttered by Will Rogers during the Great depression:
“I’m not so much concerned about the return on my money as the return of my money.”
Wise words in these volatile times. Gross is a long-outspoken critic of global fiscal policy, pointing at the U.S. Federal Reserve mishandling its interest rate policies. (Source: Bloomberg, last accessed September 30, 2015.) He has also spoken out against the ongoing Chinese stock market crash. (Source: Barrons, last accessed September 30, 2015), with the possibility of financial contagion leading to global economic collapse.
For those who have followed Bill Gross’ coverage of stock investments, the advice to hold on to cash or its nearest equivalents is a familiar line of thinking. Gross is heavily opposed to most forms of stock market investment, and with good reason. (Source: Janus Capital Group, last accessed September 30, 2015.)
With slowing global gross domestic product (GDP) growth, stock market volatility in China and beyond, slumping commodity prices, and various geopolitical conflicts brewing; it’s no secret that it is dangerous to be too exposed to global markets. The probability of a stock market crash or even total economic collapse is not entirely impossible, if Gross’ bearish statements can be believed.
Why Are Investors Turning to Stock Market?
Are U.S. investors buying stocks simply because they don’t think they have any other options? Well, if we are going to be honest, that’s a very simple question with some fairly complicated answers.
People often dismiss the idea of holding on to their free cash during volatile times, perhaps feeling that with inflation eating away at the value of their money, investing is the only viable choice.
But this is not necessarily true.
What must be considered is that with investment and asset management, all choices come with a cost. The cost of holding cash over a long enough period is that inflationary pressure lowers its value. The advantage rendered by this cost is having immediate access to liquid money, and insulation from volatility in forms of investment other than unexpected currency devaluation.
Translation: even just holding on to your cash costs something, but at least you are shielding your money from negative swings in other investments.