Bill Gross: U.S. Heading Toward Recession
Massive leverage in the financial system could push the U.S. toward economic collapse. At least, that’s according to billionaire bond investor Bill Gross.
In his latest letter to investors in his fund Janus Capital, Bill Gross gave a bleak outlook for the U.S. economy. (Source: “Increasingly Addled,” Janus.com, February 3, 2016.)
The bond fund manager believes the Federal Reserve is “increasingly addled.” As Gross argues, Janet Yellen’s confusing monetary policy is not doing any good to the economy.
Gross points out in the letter, “They [the Federal Reserve] all seem to believe that there is an interest rate so low that resultant financial market wealth will ultimately spill over into the real economy.”
Bill Gross says that low interest rates have made world economies more vulnerable. He mentions in his letter that the central banks have weakened world economies by gambling on low interest rates.
He even went so far as to call Mario Draghi a poker champ for his negative interest rate policy (NIRP): “In recent weeks markets have witnessed Mario Draghi of the ECB speak to ‘no limit’ to how low Euroland yields could be pushed—as if he were a two-time Texas Hold Em poker champion.”
“In turn, Janet Yellen at the Fed, at least temporarily, halted their well-advertised tightening cycle at 25 basis points, followed a few days later by the BOJ’s Kuroda and a 5-4 committee vote to enter the black hole of negative interest rates much like the ECB and three other European central banks,” he adds.
Gross is now seeing “shades of 2007” in the current state of the U.S. economy. He warns his investors, “The household sector has delevered, but the corporate sector never did, and with Investment Grade and High Yield yields 200-1000 basis points higher now, what does that say about future rollover, corporate profits and solvency in many commodity-sensitive areas?”
Gross believes that a U.S. recession seems inevitable in the next 12 to 24 months. Separately speaking with CNBC, he said with full conviction that he sees no more rate hikes this year. He cited low inflation levels for his thesis. (Source: “Bill Gross: ‘Shades of 2007’ as central banks flunk,” CNBC, February 3, 2016.)
“Don’t go near high risk markets,” he concludes. “Stay safe and plain vanilla.”