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Bill Gross: Stock Markets Are Casinos Now; Stay In Cash
Aspire, Thought Leaders | 12 October 2015
By: Vance Wong
Articles (74) Profile

In Bill Gross’s September investment outlook, the legendary bond guru and bond manager of Janus Capital mentioned that cash is king in a climate of anaemic growth. He maintains that view in his outlook for October, this time with some added frustration and rage that the Fed is still unwilling to lift off rates.

As much as the jobs report, wages growth and ultimately core inflation are all not looking good enough for a rate hike, Gross thinks that they are merely creating more “economic sinkers”. The economy might look like it is hanging on but economic growth will ultimately be affected.

Saved By Zero, Or Not?

Having ultra-low interest rates have undoubtedly kept the economies going, be it in the US or Eurozone. However, such monetary policy is supposed to save the economy, not feed and create a complacent market that thinks ultra-low interest rates is the new norm.

Gross feels that this might have kept the economies running, but at the cost of increasing the load that it has to bear in the long-run. What we have now is stifling economic growth in the US, Eurozone, and possibly the entire world, since economies are and never will be, independent.

Furthermore, Gross points out that the Fed had never acknowledged the “destructive influence” of ultra-low interest rates, especially when persisted over a long time. The “savings function of capitalism” is thrown out the window, but little do we know that it is one of the, if not the important principle of investments.

So, is the global markets really saved by the zero? Gross definitely does not think so. A two-percent interest rate would certainly drive stocks and bonds down and the markets might go into turmoil. It seems like Gross is nagging but he reiterates the importance of this short term pain for an “almost certainly” assured long term gain.

Stock Markets Are Like Casinos Now

Two weeks ago, legendary bond guru Bill Gross tweeted via Janus Capital and mocked investors who think the stock market is a good place to put money in. To the bond manager, cash is the only security that makes sense right now.

Later that week on 1 October, Gross tweeted again, this time saying that stock markets right now are like casinos. The only way to invest in a casino-like market is to mimic a gambler in an actual casino.

Investors’ Takeaway

If we were to read between the lines, Gross is actually saying that the markets are so volatile that investment no longer seem like an educated guess, but a bet. In an environment where uncertainty of when the Fed will raise rates and volatility triumphs, it is no wonder Gross advises investors to stay in cash.



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