- Jim Young/Reuters
Bill Gross has some tough question for the global economy, though maybe not as tough as one he once got from his youngest son.
In his latest investment outlook, Gross poses five questions about the sustainability of the global economy that he said were just as difficult as one posed by his son Nick.
Evidently, Nick happened upon a Victoria’s Secret catalog (full of, as Gross puts it, “plain and unattractive models”) and asked him, “Dad, what is Victoria’s Secret?”
Gross framed the examination of the global economy around a meandering explanation of his discovery of how babies are born and subsequent passing of that knowledge to his children. (For instance, his mom asked him when he was 14 years old whether he knew where kittens came from. He responded, “the pet store,” so she left it at that.)
This culminated in his son’s awkward question.
“Well now, I quickly thought, does he mean what is Victoria’s Secret or what is Victoria’s Secret?” Gross wrote. “If it was the former, it could be just an innocent question about the mailer itself. If the latter, well, it was a path down which I wasn’t willing to travel.”
To divert attention, Gross posed the same kitten question to his son that his mother once asked. Gross then received the same “pet store” response he had given to his own mom all those years ago, breathed a sigh of relief, and moved on.
Eventually, Gross did relate this to financial markets.
“There are equally important questions in today’s economy and financial markets, so I thought I’d condense a few of them to hopefully explain our current situation, perhaps a little more honestly than my ‘kittens in a pet store’ ruse or what ‘Victoria’s Secret’ really was,” he said.
The questions were:
“When does our credit-based financial system sputter/break down?” “Can capitalism function efficiently at the zero bound?” “Can $180 billion of monthly quantitative easing by the ECB, BOJ, and the BOE keep on going? How might it end?” “When will investors know if current global monetary policies will succeed?” “What should an investor do?”
Essentially the answers to these five questions summed up the totality of Gross’ recent ideas and letters: The credit-fueled economy is running out of steam, and central banks can continue with their easing but doing so will distort the markets. These two realities, Gross said, will eventually lead to disaster and terrible returns for investors unless there is serious GDP growth pickup.
Gross therefore thinks investors should be wary. This means people should stay away from normal financial assets.
“I don’t like bonds; I don’t like most stocks; I don’t like private equity,” Gross wrote in his latest note.
“Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories. But those are hard for an individual to buy because wealth has been ‘financialized.'”
And where, you might ask, does Gross suggest getting exposure to such assets? The Janus Global Unconstrained strategies, which conveniently are run by … Bill Gross.
Other than that, Gross advised that investors just relax.
“Have a great summer,” he concluded. “Hit the beach. Don’t worry, be happy. Visit a pet store.”