Bill Gross, who has been frequently referred to as the Bond King for years now, is out with his monthly outlook. He may be at Janus Capital Group Inc. (NYSE: JNS) now, rather than acting as the fixed income head of PIMCO, but he is still widely followed by investors and economists.
Gross often has many colorful expressions and references that are sometimes hard to follow. The main point of his outlook in September is rather simple: Get the Federal Reserve to raise rates, but just once and then go away for some time.
Gross noted that size does seem to matter in the financial markets, and the super-size August movements in global stocks were a sign that something may be amiss in the global economy itself. Now Gross maintains that the timing and the eventual size of the Fed’s rate hike cycle now seems to be destined to be labeled “too little, too late.”
Gross thinks the Fed lost its chance to raise rates very much, and a neutral policy rate of closer to 2% now cannot be approached without spooking markets further and creating self-inflicted financial instability. Gross is calling for the Fed to hike in the coming September meeting, but he thinks their language needs to be very careful and point to the “one and done” hike so many economists have been discussing. The “done” was meant to mean at least for the next six months.
As far as what to invest in now, it is rather underwhelming. Gross said that cash or “near cash” via one- to two-year corporate bonds are his best idea of appropriate risks/reward investments. As you are probably aware, no one gets rich investing in short-term maturities in bonds of any class.
The rest of Gross’s commentary and outlook, edited down, is below:
The Fed is beginning to recognize that 6 years of zero bound interest rates have negative influences on the real economy — it destroys historical business models essential to capitalism such as pension funds, insurance companies, and the willingness to save money itself. If savings wither then so too does its Siamese Twin — investment — and with it, long term productivity — the decline of which we have seen not just in the U.S. but worldwide.