But today, from his new home at Janus Capital, Gross is selling short in credit markets, rather than buying debt.
He recently told Bloomberg that he thinks “a day of reckoning will come when central banks will no longer be able to prop up asset prices and investors will withdraw from markets.”
Which markets? Take your pick! Gross believes that near-zero, or sub-zero, interest-rate policies in a growing number of countries around the world means “the (financial) system itself is at risk.”
At the end of April, nearly $10 trillion in global sovereign debt had negative yields – meaning investors are paying issuers for the privilege of lending them money.
|Bill Gross, the bond king, is selling.|
And this upside-down financial relationship is rapidly spreading worldwide. Central banks everywhere are pushing rates under water, with Japan and Europe far down this dangerous path already.
The Bank of Japan is in the lead so far with about $6 trillion in negative-yielding bonds outstanding … with maturities out to 11 years! Europe isn’t far behind, and the European Central Bank is catching up fast.
More than 30% of all eurozone government bonds – about $2.2 trillion worth – are trading at negative interest rates. Seventy percent of all German bunds offer sub-zero yields. In France, 50% of government debt is negative, and in Spain it’s 17%.
No wonder the bond king is so bearish on bonds, when you have to pay to invest in them, rather than collecting interest income!
Ironically, Gross’ advice seems to run counter to what most investors are doing lately, selling stocks to buy more bonds. Over the past three months alone, investors have yanked $33 billion out of stock mutual funds, while investing $50 billion in bond funds. But not Gross, who advises not buying stocks or bonds.
In the immortal words of Jimmy Buffett: “where it all ends I can’t fathom, my friends…” but no doubt it will end badly someday soon.
A report by the U.S. Government Accountability Office (GAO) found that the Pentagon is still using computing systems out of the 1970s that require 8-inch floppy disks. These types of disks started to be phased out of computers late in the 1970s, except, apparently, at the Pentagon. The report says that government departments spend about $60 billion a year on operating and maintaining out-of-date technologies. The floppy disks are so outdated that the GAO, in its report, had to define just what exactly a “floppy disk” was.
The worldwide headquarters of McDonald’s (MCD) in Oak Brook, Ill., was nearly shut down as protesters demanding higher wages converged on the site ahead of today’s annual shareholders meeting. Restaurant workers are seeking a minimum wage of $15 an hour and increased benefits. Meanwhile, the ex-president and CEO of the company, Edward Rensi, said that a $15 minimum wage would cost jobs as it would lead to greater automation.
Rensi explained: “I was at the National Restaurant Show yesterday, and if you look at the robotic devices that are coming into the restaurant industry — it’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging french fries — it’s nonsense and it’s very destructive and it’s inflationary and it’s going to cause a job loss across this country like you’re not going to believe.”
A Red Chinese military official is being criticized for saying that Taiwan’s new president, Tsai Ing-wen, is unfit to hold office because she is unmarried. “As a single female politician, she has no emotional encumbrances of love, no family restraint, no children to worry about. Her political style and tactics are often emotional, personalized, and extreme,” he wrote in a newspaper controlled by the Communist-led Mainland government.
The military official is Maj. Gen. Wang Weixing, a member of China’s Association for Relations across the Taiwan Straits, which handles ties with its pro-Western Taiwan rival. The comments even raised anger in China, with many critics pointing out that South Korean President Park Geun-hye and former Chinese Vice Premier Wu Yi were successful, single Asian female politicians.
Red China and Taiwan have a long, troubled history, largely because each considers itself to be the legitimate ruler of all of China.
What’s your view on stocks vs. bonds? … How’s your technology at home and work? Up to date or are you still clinging on to outdated systems? Is a minimum wage of $15 an hour too much? Would it benefit all workers up the salary chain or cost jobs?
The Money and Markets team