Cen­tral banks ' run­ning out of time' to re­flate economies: Bill Gross

The Pak Banker - - FRONT PAGE -

NEW YORK: Bond man­ager Bill Gross, who runs the Janus Global Un­con­strained Bond Fund, said cen­tral banks are "run­ning out of time" to re­flate global economies as their ag­gres­sive poli­cies in­clud­ing quan­ti­ta­tive eas­ing and low, even neg­a­tive, in­ter­est rates are los­ing their ef­fec­tive­ness. In his April In­vest­ment Outlook, Gross wrote that mar­kets and the cap­i­tal­is­tic busi­ness mod­els based upon them and priced for them "will be­gin to go south" if global economies do not pro­duce growth.

Given mas­sive mone­tary stim­u­lus, Gross said nom­i­nal gross do­mes­tic prod­uct growth rates for the U.S. should be be­tween 4 per­cent and 5 per­cent by 2017 while that for the euro zone should be be­tween 2 per­cent and 3 per­cent, re­spec­tively.

On Mon­day, the Fed­eral Re­serve Bank of At­lanta's GDPNow model pre­dicted U.S. growth at a 0.6 per­cent pace in the first quar­ter, marked down from an ear­lier es­ti­mate of 1.4 per­cent. In Ja­pan, nom­i­nal GDP should be be­tween 1 per­cent and 2 per­cent while China should be be­tween 5 per­cent and 6 per­cent by 2017, Gross added.

"Cap­i­tal gains and the ex­pec­ta­tions for fu­ture gains will be­come Giant Pan­das - very rare and sort of in­ef­fi­cient at re­pro­duc­tion," Gross said. "I'm say­ing that de­vel­oped and emerg­ing economies are fly­ing at stall speed and they've got to bump up nom­i­nal GDP growth rates or else. Cross your fin­gers." Gross warned against in­vest­ing in neg­a­tive-yield­ing se­cu­ri­ties. "The real mar­ket and the real econ­omy await a dif­fer­ent con­clu­sion as losses from neg­a­tive rates re­sult in cap­i­tal losses, not cap­i­tal gains," he said. "In­vestors can­not make money when money yields noth­ing. Un­less... nom­i­nal GDP can be raised to lev­els that al­low cen­tral banks to nor­mal­ize short-term in­ter­est rates, then south in­stead of north is the log­i­cal di­rec­tion for mar­kets."

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