Janus Capital Group Inc. (NYSE: JNS) has been home to Bill Gross for over a year now. Gross has been referred to as “The Bond King” for years. So what happens when the king of bonds warns investors that long-term bonds, banks and credit are all getting too risky? Is it possible that there is now no place to hide — maybe not even in cash?

This was the case laid out in the March 2016 monthly investment outlook. Gross’s monthly commentary has had similar warnings in the past, and the references here to the endless sun = credit was easier to follow than some of his more complex analogies and story-weaving efforts. While Gross went on to talk about the sun being the nourishment for the earth, it eventually will consume the earth.

Gross points out that among the things that deserve our attention in the here and now, one is finance-based capitalism and the assumption that the risk/reward historically inherent in it will be sufficient to drive economic growth forward.

With quantitative easing and negative interest rates, the concept of nurturing credit seems to have morphed into something destructive, as opposed to growth enhancing. Gross said:

Our global, credit based economic system appears to be in the process of devolving from a production oriented model to one which recycles finance for the benefit of financiers. Making money on money seems to be the system’s flickering objective. Our global financed-based economy is becoming increasingly dormant, not because people don’t want to work or technology isn’t producing better things, but because finance itself is burning out like our future Sun.

Gross pointed out that the global economy has been powered by credit, with its expansion being 58-fold since the early 1970s in the United States alone. He points out that we now have $58 trillion of official credit outstanding, versus only $1 trillion in 1970.

Gross believes that this credit expansion appears to be reaching an ending of sorts. He said:

Private sector savers are growing leery of debt piled upon debt and government regulators have begun to build fences against further rampant creation. In addition, the return offered on savings/investment whether it be on deposit at a bank, in Treasuries/ Bunds, or at extremely low equity risk premiums, is inadequate relative to historical as well as mathematically defined durational risk.

Gross also talked about negative interest rates and the problems coming from them:

The negative interest rates dominating 40% of the Euroland bond market and now migrating to Japan like a Zika like contagion, are an enigma to almost all global investors. Why would someone lend money to a borrower with the certainty of getting less money back at a future date?

And on the banking sector, Gross is betting against them. He said:

Banking/finance seems to be either a screaming sector ready to be bought or a permanently damaged victim of write-offs, tighter regulation and significantly lower future margins. I’ll vote for the latter.

Gross even pointed out how the stocks have cratered in the banking sector. These share prices were shown as follows:

• Citibank was $500 in 2007, now $38.
• Bank of America was $50, now closer to $12.
• Credit Suisse was $70, but now $13.
• Deutsche Bank was $130, but now $16.
• Goldman Sachs was $250, but now $146.

Gross worries beyond banks. He thinks that other business models with long-term liabilities that depend on 7% to 8% future returns from risk assets are themselves at risk. That is not bankruptcy risk, but future profitability.

Gross also names MetLife, Prudential and Hartford. He thinks these insurers cannot cover claims as conveniently as they could in the past. Simply put, they just can’t earn as much on their bonds and stocks as they could in the past.

On pension funds, Gross sees the same risk and named Puerto Rico and Detroit. That is not just on overpromised benefits, but because they cannot earn enough on their investment portfolios to cover the promises. Low or negative interest rates do that. And the damage extends to all savers; households worldwide that saved or invested money for college, retirement or for medical bills. They have been damaged and only now are becoming aware of it. Negative interest rates do that.

Government policymakers seem to be setting up future roadblocks for savers, even noting that there is a somewhat suspicious uniform attack on high denomination bills of global currencies ($100 billion and €500 notes).

You should be aware that our finance-based economic system, which like the sun has provided life and productive growth for a long, long time, is running out of fuel and that its remaining time span is something less than 5 billion years.

Gross is further warning that reaching for high-yield and a low price-to-book ratio of bank stocks are too risky here. Treasuries and Bunds (Europe) were also called too risky. Gross said:

A 30 year Treasury at 2.5% can wipe out your annual income in one day with a 10 basis point increase.

Gross even warns what to do in case of negative rates:

The secret in a negative interest rate world that poses extraordinary duration risk for AAA sovereign bonds is to (1) keep bond maturities short and (2) borrow at those attractive yields in a mildly levered form that provides a yield (and expected return) of 5% to 6%.

Again, what are investors supposed to think when the king of bonds is basically warning you against all longer duration bonds?

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