Global Monetary System Reaching Breaking Point - Gross
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Statements by Pimco's Bill Gross today should be worrying to investors, since they more or less predict a sharp and potentially dangerous correction in the bond market.
Here is a quote from Pimco's June 2012 investor insight:
"The global monetary system which has evolved and morphed over the past century but always in the direction of easier, cheaper and more abundant credit, may have reached a point at which it can no longer operate efficiently and equitably to promote economic growth and the fair distribution of its benefits. Future changes, which lie on a visible horizon, may not be so beneficial for our ocean’s oversized creatures."
By oversized creatures, Gross is referring to governments, banks, and wealthy individuals. All of these entities have benefited from a 30 year downward trend in cost of capital, but that trend is unlikely to continue. The paper issued by these entities is becoming lower in quality and yields are also getting lower, which could at some point reach a tipping point, according to Gross.
"The developing credit cancer may be metastasized, and the global monetary system fatally flawed by increasingly risky and unacceptably low yields."
As a strategy, investors should focus on intermediate sovereign debt in the U.S., Mexico, and Brazil, with gradually shortening maturities. Equity investors should favor stable cash flow companies vs. ones exposed to high growth markets.
Bill Gross manages Pimco's the bond ETF (NYSE: BOND).
Here is a quote from Pimco's June 2012 investor insight:
"The global monetary system which has evolved and morphed over the past century but always in the direction of easier, cheaper and more abundant credit, may have reached a point at which it can no longer operate efficiently and equitably to promote economic growth and the fair distribution of its benefits. Future changes, which lie on a visible horizon, may not be so beneficial for our ocean’s oversized creatures."
By oversized creatures, Gross is referring to governments, banks, and wealthy individuals. All of these entities have benefited from a 30 year downward trend in cost of capital, but that trend is unlikely to continue. The paper issued by these entities is becoming lower in quality and yields are also getting lower, which could at some point reach a tipping point, according to Gross.
"The developing credit cancer may be metastasized, and the global monetary system fatally flawed by increasingly risky and unacceptably low yields."
As a strategy, investors should focus on intermediate sovereign debt in the U.S., Mexico, and Brazil, with gradually shortening maturities. Equity investors should favor stable cash flow companies vs. ones exposed to high growth markets.
Bill Gross manages Pimco's the bond ETF (NYSE: BOND).
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William H. Gross, Pacific Investment Management Company, LLC (PIMCO)Sign up for StreetInsider Free!
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