According to the lead manager of the Janus Global Unconstrained Bond Strategy, “global markets and individual economies are increasingly “addled” and distorted” as a result of the increasingly narrow focus on the “elixir of low/negative interest rates”.
As a result of these growing distortions, Gross warned investors: “do not go near high risk markets, stay safe and plain vanilla.”
Adding: “It’s not predetermined or guaranteed, but a more prosperous outcome should be somewhere around the corner if you do.”
As reason for his argument, Gross pointed to seven examples of the impact of these distortions. Among these are the low oil price, growing debt in Japan and the increasingly negative yields seen among European countries.
“Who will invest in these markets once the ECB hits an effective negative limit that might be marked by the withdrawal of 0% yielding cash from the banking system?
With regard to Japan, he said: that because the fiscal and monetary arms of the government are “basically one and the same”, in some future year the debt will likely be “forgiven” via conversion to 0% 50-year bonds that effectively never come due.
“Japan will not technically default but neither will private investors be incented to make a bet on the world’s largest aging demographic petri dish. I’m tempted to say that “Where Japan goes – so go we all”, but I won’t – it’s too depressing.”
