Bill Gross: Banks Cannot Sustain Crisis … This Is All Ending

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American financial manager and author Bill Gross issued a grim outlook on the worlds finances recently, and the opening paragraphs make for a depressing read. 

“I have a sense of an ending,” Bill wrote. “Death frightens me.”

Yahoo News reports:

“Turning 70 is something that all of us should hope to do but fear at the same time,” he added. “At 70, parents have died long ago, but now siblings, best friends, even contemporary celebrities and sports heroes pass away, serving as a reminder that any day you could be next. A 70-year-old reads the obituaries with a self-awareness as opposed to an item of interest.”

And then he applied the same sense of mortality to the “great Bull Run” in stocks and bonds that began in 1981.

Many prominent investment managers have been sounding similar alarms, some, perhaps a little too soon as with my Investment Outlooks of a few years past titled, “Man in the Mirror,” “Credit Supernova” and others. But now, successful, neither perma-bearish nor perma-bullish managers have spoken to a “sense of an ending” as well. Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms.

“Asset prices may be past 70 in ‘market years,'” he added.

Gross slammed the idea that central banks could continue to sustain their economies and fix debt crises with more debt. He noted that the US had not seen real growth above 2% since the crisis, despite the Fed’s “trillions of dollars of monetary lighter fluid.” And that’s bad news for Japan and the eurozone.

For money managers, their tactics for the past 35 years — focusing on areas where the most capital gains can come from — will no longer work.

“This is all ending. The successful portfolio manager for the next 35 years will be one that refocuses on the possibility of periodic negative annual returns and minuscule Sharpe ratios and who employs defensive choices that can be mildly levered to exceed cash returns, if only by 300 to 400 basis points.”

1 Comment

  1. CA’s reservoirs are near empty. We are being told there is perhaps a one-year supply left. Governor Jerry Brown has finally stepped up and requested a 25% use reduction, which may delay the emptying process by another three months. After the reservoirs are dry we will become dependent on ground water. Unfortunately NASA infrared photos show CA’s aquifer system to be dry. CA is out of water.

    Two weeks ago I met with two Silicon Valley Executives who have a realistic understanding of CA’s water problems. The insights from the discussions were dire.

    The first gentleman was directly involved in 6 successful start-ups and presently sits on 4 Boards. His colleagues in the Agricultural Industry told him they are projecting
    a 12-fold increase in the cost of water starting in 2016. My family water bill at present is $400 per year. If that is an across the board increase, a 12-fold increase would drive my annual water expense to $5,000, which the vast majority of people living in CA don’t have in disposable income to pay. How do you think a 12-fold increase in the price of water will affect the people and businesses in CA?

    The second gentleman lives in San Diego. His wife is helping design a desalination
    project presently under construction there. As he shared insight his resentment toward CA’s water management grew increasingly. He told me how 5 years ago he and his wife purchased a home in Seattle WA as a hedge for the day when CA would run out of water. He believes that
    time is close. Investment experts believe real estate has a lot farther to rise. How much higher do you believe it will go in CA once we hit crisis point perhaps within a year?

    Last week I met with Oakland CA’s City Planner. I asked him where he saw Oakland in 5
    years. 15 seconds into his upbeat description I interrupted him with the statement “CA has no water”. His demeanor changed immediately as he said, “I know”. He stated those overseeing the problem are hoping for a solution because they have no idea for how to solve
    this devastating problem. How secure are you with a positive outcome when the plan of those in charge is to hope?

    Yesterday I met with a high-level business analysis who had worked on a similar problem in Atlanta GA. There the Army Corp of Engineers (ACOE) was controlling the situation. This gentleman was brought in to help find a solution. To his surprise the ACOE was very upfront with their assessment. They told him that they had no idea for how to solve the problem. Any solution had to be politically agreeable. And the law required the following of solutions presented in an antiquated instruction manual that was over 100 years old. How much faith do you put in the problem solving of the US Federal Government?

    What has caused CA’s drought? Scientists state the jet stream has shifted causing climate change across the globe. Some scientists believe CA may be entering a mega-drought period. From the 1970’s to the mid 90’s CA was in a wet period, which saw her population double. Over the past 1,200 years scientists have used tree rings to determine 2 prolonged mega-droughts in CA. One lasted 200 years the other 150. Do you believe a brief mega-drought of 25 years would be financially devastating not only to CA but the entire world?

    Some financial experts estimate the value of global derivatives has reached $1 quadrillion. That number is so big it would take you 31.6 million years to count one second per number. A $1 quadrillion financial house of cards and one misplaced card may bring it all down. Will the collapse of CA’s $50 billion annual agricultural business be that card? How about a wildebeest migration of people moving away from CA because they can’t afford the price of a glass of water?

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