To say that bond fund manager Bill Gross is negative on the financial markets would be a major understatement. In his latest monthly investment outlook and simulcast interview on Bloomberg radio and television, the lead portfolio manager of the Janus Global Unconstrained Bond strategy warned investors about a future of low returns and high risk due to major changes in the global economy.
“For over 40 years, asset returns and alpha generation from penthouse investment managers have been materially aided by declines in interest rates, trade globalization and an enormous expansion of credit, that is debt,” Gross wrote in his latest outlook.
Over that time period, the Barclays Capital U.S. Aggregate Index gained close to 7.5% annually, while stocks earned an additional 3%. It was a “remarkable” performance that “cannot be repeated” because interest rates are near zero or negative in many developed markets and stocks historically earn about 3% more in “equity premium,” wrote Gross. “Those trends are coming to an end if only because in some cases they can go no further.”
Bond yields, for example, “would have to drop to -17%” in order to repeat the 7.5% gain over the past 40 years, according to Gross.
“A repeat performance is not only unlikely, it is impossible, unless you are a friend of Elon Musk and you’ve got the gumption to blast off to Mars. Planet Earth does not offer such opportunities.” Musk, the CEO of electric carmaker Tesla Motors, is also the founder and CEO of SpaceX, which hopes to transport humans to Mars by 2025.