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Bill Gross slams central banks’ ‘desperate gamble’
by Chris Sloley on Dec 03, 2013 at 14:41
Central banks’ attempts to push investors into riskier parts of the market have failed to stimulate growth and encouraged irrational investment decisions, according to Bill Gross.
In his latest Investment Outlook, the bond market veteran continued his long-standing criticism of quantitative easing in developed economies and likened it to a ‘desperate gamble’ by policymakers.
He said this has led many investors to show ‘more desperation than logical thinking’ as they seek to stay ahead of policy movements.
‘Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth,’ he said.
‘The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets.’
Gross, who runs the world’s second largest mutual fund, the PIMCO Total Return Bond fund, said there was no sign of these expansive monetary policies having a meaningful effect in global economies despite central bank efforts.
He said: ‘You have no other choice,” their policies insinuate. “Get used to negative real interest rates, move out on the risk spectrum and in the process help heal the real economy,” they seem to command.’
‘Yet this now near 5-year migration across the global asset plains in search of taller grass and deeper water has had limits, both in price and real growth space.’
Looking ahead, Gross said central banks must be extremely worried about what will happen when the ultra-accommodative policies currently in action fail to create a lasting positive effect.
‘Deep in the bowels of central banks research staff must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE.’
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