Janus Capital fund manager Bill Gross has told investors to buy gold and other real assets instead of bonds and stocks in his latest investment outlook.
However, he has added that these are difficult to buy because wealth has been “financialised”.
Gross, who is known as the Bond King, also adds that much of his money is in the Janus Global Unconstrained strategies.
“In this high risk/low return world, the obvious answer is to reduce risk and accept lower than historical returns,” Gross says.
“Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels. I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories.”
Gross says the world’s credit-based financial system faces break down when investible assets pose too much risk for too little return.
“Not immediately, but at the margin, low/negative yielding credit is exchanged for figurative and sometimes literal gold or cash in a mattress. When it does, the system delivers as cash at the core, or real assets like gold at the risk exterior, become the more desirable assets,” Gross says.
Central banks are “oblivious” to the “dark side” of low interest rates, whereby expected income fails to materialise and investment spending stagnates, hitting the real economy.
“Low interest rates may raise asset prices, but they destroy savings and liability based business models in the process. Banks, insurance companies, pension funds and Mom and Pop on Main Street are stripped of their ability to pay for future debts and retirement benefits.”
Gross says without nominal GDP growth economies companies and individuals are unable to service their debts with increasing finance and a credit-based economy devolves into Ponzi finance – and at some point implodes.
Gross says nominal GDP growth in the US needs to be 4 per cent, while “Euroland” needs 3 to 4 per cent, and Japan needs 2 to 3 per cent.