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Bill Gross warns financial markets have become 'a Vegas casino'

102 points by endswapper 10y ago

tedunangst 10y ago
Sooo, uh, do zero interest rates make life easier or harder for a bond trader?
- qwrusz 10y ago
  The trading part is easier. Keeping clients/AUM is harder (ie clients leave to put their $ into other asset classes).
- deleted 10y ago
  [deleted]
- lordnacho 10y ago
  Makes it harder, for sure. I sat on a bond desk with a guy with over 20 years of experience. That experience was mainly during the long period of falling yields that started in the early 80s. Opportunities would open up in the curves in various ways. The basis would move, and there was a variety of opinions about what would move the market. Now it's very much dependent on central bank behaviour, which is something not many traders have an inside scoop on. We've never been through a time when the interest rate on just about every major currency is around zero.
justinlardinois 10y ago
> Gross, who oversees the $1.5 billion Janus Global Unconstrained Bond Fund, recommended Bitcoin and gold for investors who are looking for places to preserve capital. Because wild Bitcoin fluctuations are somehow less akin to gambling than the securities market? Glad he also threw in some "buy gold" scaremongering too. Does Janus benefit somehow from this kind of talk?
- tedunangst 10y ago
  Janus benefits from being run by a thought leader.
- duaneb 10y ago
  > Glad he also threw in some "buy gold" scaremongering too. I'll bite; why is gold a bad investment? Does it not have low risk and stable value? Hell, these days it even has REAL value as a special metal.
  - Mikeb85 10y ago
    It's value isn't that stable... It's just another commodity. It trades like a commodity, its not anything special, it's not currency, it's metal dug from the ground. People attribute way more importance to it than they should.
    - jklontz 10y ago
      True, but unlike other commodities it's easy to take a long position on gold with ETFs like GLD which actually store the physical gold. For other commodities (like oil with ticker USO) it's not so simple to take a long position. The best you can do is trade options, with the added risk of a contango market.
      - kasey_junk 10y ago
        You are potentially overselling the "store physical gold" component of GLD depending on what you think the redemption rules of the fund are. As per usual Kid Dynamite is my favorite writer on the subject: http://kiddynamitesworld.com/why-is-gld-so-hard-for-people-to-understand-an-etf-lesson-part-iii/ http://kiddynamitesworld.com/why-is-gld-so-hard-for-people-t...
    - endswapper 10y ago
      I'm no gold-bug. It's value is relatively stable. The fact that it is a commodity, or that it is not a currency, has nothing to do with its value. It is special, in the sense that is is both a precious metal and an industrial metal, and it is also a common store of value, i.e. gold reserves. Many incredible, valuable things are "dug from the ground." Gold is not a bad investment as part of diversified portfolio. To justinlardinois's point, the stability and risk duaneb refers to, are reasons fearmongers encourage divesting other holdings in to gold in times of instability.
- endswapper 10y ago
  His argument is that economies that rely too heavily on monetary policy are unsustainable. Furthermore, he is suggesting that we are nearing a tipping point when there is abundant competition for meager returns that should be temporary. The traditional roles and functions of the bond market in economies around the world have been perverted by policy. At some point investors will exhaust the risk threshold in bond markets, and arguably, tap less traditional markets like Bitcoin simply because they are a counterpoint to the bond markets.
  - michaelchisari 10y ago
    How are economies that literally have no monetary policy a better alternative, though?
    - jbarham 10y ago
      Quoting from the article: "At some point investors – leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives."
    - endswapper 10y ago
      I'd argue that they are not. It's more about the proper measure. Monetary policy is a tool attempting to hit a moving target.
      - mattnewton 10y ago
        > Monetary policy is a tool attempting to hit a moving target By sweeping the ice in front of the economy-puck with a toothbrush. There is an effect, just a lot of other stuff has a big effect too...
    - WalterBright 10y ago
      The US had no monetary policy for the first 100 years of its existence, going from subsistence farming to superpower.
- woodpanel 10y ago
  > Does Janus benefit somehow from this kind of talk? Maybe in terms of marketing itself as having sway in how to interpret things. Lets call it PR. These kind of statements show a helplessness from old thought leaders. It shows that we can't continue to explain today's world by 1929 analogies. It smells like Black Swan. But maybe the Black Swan is just that we at some point realize, that we were cargo culting for the next gloom and doom to happen. Edit: if you downvote please have the sophistication and argue why.
- Bud 10y ago
  Gross also recommended that folks tune in to Glenn Beck for even more savvy financial advice.
- candiodari 10y ago
  Here is the source: https://www.janus.com/insights/bill-gross-investment-outlook https://www.janus.com/insights/bill-gross-investment-outlook How does he benefit ? The way to win on the stock market is sometimes and somewhat cynically referred to as OPM (other people's money). Bill Gross has managed to convince a few large clients to invest in bonds through him (their money - his decisions) and has made quite a bit of money because of a sustained streak of good decisions. How does he benefit ? By convincing more people to put their money in one of his funds. A more balanced report of what he's talking about is possible. Right now he feels that it is a necessity for capital preservation to be well protected against a large downside (which would translate into a big surge in interest rates). On the one hand "past performance is not an indicator of future performance", on the other hand, it would be foolish to ignore this voice. People should realize what the cost of "stimulating the economy" has been : long-term low-risk investments have done extremely poorly for 10, even up to 15 years in some cases. High-risk investments have done well, but with several big "oops" moments that challenge capital preservation. Combined with this, regulation of pension and bank investments across the globe have emphasized capital preservation and forced these organisations to put significant investments in low-risk-and-now-extremely-low-yield investments. This currently means, if you're under 35-40, you effectively don't have a pension if you're not in the 0.1% (ie. you're not a director at least ? You don't have a pension). That age is going up, and it's not like it's doing any favors for people who are older. In other words: we've forced banks and pension funds to move away from "more risky" things, nonzero odds of failure for certainty of far-off failure. We have decided to have an almost-certain failure of our pension systems, so governments can spend more today "to save the economy". That save part is in quotes because while people were quite certain that was what they were doing 8 years ago, let's say that the enthousiasm for this viewpoint has gone below freezing in the past year or two. A more cynical person might say that governments have decided that while they will constantly loan money, they will no longer pay interest. Bill Gross' critique is that this is the feedback mechanism that balances governments spending against private sector growth spending (because the government is a negative for the economy. It's a necessity, roads, healthcare, etc, but a negative. If the public sector grows "too much", as history has proven time and time again, a total crash follows). Assuming there's no total crash (because you don't prepare for that. If that happens, it's over and what you did or did not do doesn't matter. So you prepare for the other options), what people are predicting will happen, given the models of 1972, 2001, 2008 and even before 1929 and the like is that a sudden massive inflation spike will occur coupled with a fall in asset prices (like houses and ...), and especially a fall in stock prices.
- roymurdock 10y ago
  It's called talking your book. See this thread [1] from the last time Bill Gross said that banking and finance are "permanently damaged" a little under a year ago. He's bombastic and clickbaity and it attracts money from likeminded, bearish investors. [1] https://news.ycombinator.com/item?id=11217860 https://news.ycombinator.com/item?id=11217860
  - Steko 10y ago
    Gross's fund at PIMCO had terrible years in 2011 and 2013 and his new fund at Janus is underperforming the Barclays Aggregate Bond Index, so he needs both a scapegoat and a class of marks who will still buy in despite the performance. The Fed provides a convenient target to blame bad performance on, especially for Gross given his 2013 misread of Fed unwinding. As far as potential investors go, much of the country club set are sympathetic to the broader narrative of the capitalist hero (the guy literally refers to himself as 'Secretariat' and Justin Bieber of the bond market) beset by meddling bureaucrats and there's a smaller but much more enthusiastic group of devoted monetary cranks who really eat this stuff up.
- ddeck 10y ago
  That was a surprisingly sensational interpretation by Reuters of the original quote. Looking at the source, he didn't recommend these assets. What was actually wrote was: "At some point investors — leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives. Bitcoin and privately agreed upon block chain technologies amongst a small set of global banks, are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms. Gold would be another example — historic relic that it is. In any case, the current system is beginning to be challenged"
  - justinlardinois 10y ago
    That's certainly a different sentiment that the Reuters quote. But even if it's not an endorsement of Bitcoin and gold, it's still problematic because he's saying that scarcity implies stability, which simply isn't true.
    - solotronics 10y ago
      Already bitcoin has been more stable (and increased in value) over the last year compared to many central bank issued currencies.
      - mark_edward 10y ago
        You understand stable and increased in value form a contradiction?
        deleted 10y ago
        [deleted]
        Luc 10y ago
        Stable in purchasing power hence increased value vs currencies that lost purchasing power.
- 3327 10y ago
  Yes Equity markets go down and money typically moves into bonds via large funds. And bond ASK prices go up since quality bonds like IBM, GOOG or gov't become high demand.
danblick 10y ago
Reminds me of "the ludic fallacy": https://en.m.wikipedia.org/wiki/Ludic_fallacy https://en.m.wikipedia.org/wiki/Ludic_fallacy Which points out... Casinos are sometimes a bad model for randomness in the real world. In a casino you have only "known unknowns", but in the real world it's "unknown unknowns" that often cause problems.
- pdkl95 10y ago
  From that wiki page: > gravitating towards mathematical purity and failing to take various aspects into account Mark Blyth puts a lot of blame specifically on the "seductive" quality of mathematical models. https://www.youtube.com/watch?v=hmWbkPezgtU https://www.youtube.com/watch?v=hmWbkPezgtU It may be beautiful math, but that doesn't mean it actually models anything useful with any amount of accuracy and precision. Combine that with the social inertia and status-quo-preserving reactions of the people who created or used the bad models, and you get our current economic situation.
- ikeboy 10y ago
  Plenty of people have exploited casinos' unknown unknowns (first card counting, then other tricks)
ry4n413 10y ago
gross is a living legend
- throwaway98237 10y ago
  It's true, his "Investment Outlook" is one of my favorite things to listen too.
throwaway98237 10y ago
"have become"... Lmao here. Any cursory study into the history of financial markets will show that they've always been "casinos".
WallWextra 10y ago
I bet PIMCO is really happy they kicked him out, now that he's promoting Bitcoin.
Hydraulix989 10y ago
How hasn't that been the case unless you just invest in the index? Is it just that much harder to "seek alpha" now?
kelvin0 10y ago
Well HFT is going to fix all that ... * cricket chirps
kaycebasques 10y ago
Has anyone looked into his argument that zero percent interest rates destroy business models that underpin our economy (I.e. insurance)?
- jbarham 10y ago
  The entire finance industry has been saying this is a systemic risk since ZIRP was instituted in 2008 if the economy didn't achieve "takeoff velocity". Here we are eight years later still under ZIRP and even NIRP (which is completely unprecedented) so the systemic risk is only bigger.
- mathattack 10y ago
  Low interest rates (at least with a yield curve) can help banks. Banks that can borrow short term and pay near zero, and lend long term (say a mortgage) with a higher rate can make money in this environment. Insurance and Pensions are trickier, and it gets to the point of real (inflation adjusted) versus nominal returns. If an insurance company needs to invest against a real returns, than a 3% interest rate with 0% inflation is the same as 7% with 4% inflation. This is how we should think of our 401Ks - as long as we maintain purchasing power, the # of the rate doesn't matter. (Rates rise when inflation rises and goes down when it shrinks) The flip side is if insurance companies or pensions make nominal promises ("Give us 10% of your income per year, and we'll invest it guaranteed at a 5% return") then it becomes problematic. But in a low rate environment, people shouldn't be making these kinds of promises. The strange thing about this whole article is why now? Why are the financial markets more of a casino than in 1999 or 2007?
  - forgetsusername 10y ago
    If banks make money off the interest rate spread, how does the absolute level of rates matter (outside of misjudged future rising rates)?
    - TheSpiceIsLife 10y ago
      I think it goes something like this: Low interest rates cause debt inflation. People can borrow increasingly more as rates go down. As rates go down, the spread doesn't change, but the value of the loans increases. Maybe someone more knowledgeable can fix me up here.
qwrusz 10y ago
Financial markets have always been casinos. I think what Bill means is that central banks have now taken a seat at the casino's table. If a whale sits down next to you at the casino and starts playing unorthodox strategies and betting crazy and distracting the dealer - well some old folks don't like that. Side note: Read Bill's bio, he is a very good gambler, especially blackjack.
- lappa 10y ago
  Being a very good blackjack player doesn't mean much. You can follow a relatively simple set of instructions to maximize expected value.
  - qwrusz 10y ago
    You are correct. Depending on one's definition of "very good" blackjack player it doesn't mean much. Casinos even allow players to bring those little instruction cards to the table while they play. I am not talking about max expected value. I am talking about exceeding max expected value. Being a "very good gambler". TL;DR I am talking about alpha. not beta. beta doesn't mean much. alpha means everything here.
- toomuchtodo 10y ago
  If you're playing against someone whose pockets have unlimited depth, why would you play at the same table? How do you succeed when the rules can change like the winds shifting? That's what "old folks" don't like.
  - qwrusz 10y ago
    Why do people go to casinos? How does such a business even exist. People know the odds are against them and go and play anyway.
- qwrusz 10y ago
  The Reuters headline and article are misleading. I was trying to help add context/some clarity based on what Bill actually said. But seeing the multiple downvotes to my comment, it appears I may have miscommunicated. I am fallible, and only have 5 years experience as a professional bond trader so it's likely others on here have more experience and I welcome the chance to learn. The headline makes it sound like markets have suddenly become a casino. That's not correct. The headline cuts off the rest of the sentence changing the meaning. The key point is markets have become a casino which are now using a Martingale-like system that is deceptively risky and intractable once started. Hence he titled the letter "Doubling Down". Link to original: https://www.janus.com/insights/bill-gross-investment-outlook https://www.janus.com/insights/bill-gross-investment-outlook Financial markets have always been a casino. Do people disagree with this? You bet money, make an educated guess about the future, if you are lucky and guess outcomes right you end up with more money. If you guess wrong you end up with less money. Win or lose you pay transaction costs (a rake, the vig, commission, spread, etc..) Bill Gross has some great Investment Outlooks over the years still worth reading. Couple favorites: "But let me admit something. There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne. All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience." https://www.pimco.com/insights/economic-and-market-commentary/investment-outlook/a-man-in-the-mirror https://www.pimco.com/insights/economic-and-market-commentar... https://www.pimco.com/insights/economic-and-market-commentary/investment-outlook/time-to-vote https://www.pimco.com/insights/economic-and-market-commentar... https://www.janus.com/insights/bill-gross-investment-outlook/january https://www.janus.com/insights/bill-gross-investment-outlook...
bluetwo 10y ago
I think this is a result of the frustration Gross has with central banks printing money. He is mad that it makes it difficult to make money in bonds, but no one under 50 cares about this. A side-effect is that it makes stock prices go up regardless of the underlying value. This people care about so this is the message he keeps spreading. Negative interest rates, which he is also concerned about, are insane. People would be rioting in the streets if they really understood how this inflates value for those who have money and inflates debt for those who owe.
- toomuchtodo 10y ago
  While you might not care about bonds if you're under 50, surely you care about the overinflated value you're pouring into real estate (your home) or equities (your retirement) if you're under 50, whose prices are going to deflate quickly when the Fed raises rates. If Congress won't use policy to push wages up, thereby stoking consumer demand, we will be condemned to stagflation and never ending asset froth/bubble/pop cycles. The Fed has run out of tools in their belt. If it took pushing benchmark rates close to zero to get the US economy humming again, and we're still close enough to zero to call it zero, what happens if another economic slowdown occurs?
- skybrian 10y ago
  Don't you have that backwards? Low interest rates are good for debtors - they pay less interest. Negative interest means you're being paid for borrowing.
  - rayuela 10y ago
    Yup. I think they've confused inflation rates with interest rates. When is low interest rates bad for borrowers (growth outlook aside)? Inflation definitely has the inverse relationship, where a higher inflation rate is better for borrowers.
  - bluetwo 10y ago
    Low interest rates are good (you could argue) but negative interest rates make it harder to GET dollars to pay back your loans because the value of each dollar is more. Imagine if you borrow 200k for a house and when you sell it you can now only get 150k, or if you take a new job and the market for your skills pays 20% less than it used to. Negative rates distort things in weird and unintuitive ways.
jnordwick 10y ago
Remember, the Fed only targets the low end of the yield curve with any ability (literally overnight lending), and sometimes it doesn't even do that well. Just look at the spread between the the overnight rate and the target rate to see how far off they are at times. Anything past that down the curve is far more driven by economic forces and inflation (which, yes the Fed does control/target however you want to word it, but only really pathetically). Even the 30-day paper whips around far more than the Fed has handles on. Gross is just hurt because he's getting dragged across the coals lately. Never take advice about markets not working / being irrational / etc. from somebody underwater. Corollary: never listen to how the markets are brilliant / doing the right thing / blah blah from somebody holding a winning position either. Find the guys who are getting taken to the cleaners and trying to understand why and reevaluating their situations. You'll learn a hell of a lot more from them.
hmoghnie 10y ago
Always been.

102 points by endswapper 10y ago

tedunangst 10y ago

Sooo, uh, do zero interest rates make life easier or harder for a bond trader?

qwrusz 10y ago
The trading part is easier. Keeping clients/AUM is harder (ie clients leave to put their $ into other asset classes).
deleted 10y ago
[deleted]
lordnacho 10y ago
Makes it harder, for sure. I sat on a bond desk with a guy with over 20 years of experience. That experience was mainly during the long period of falling yields that started in the early 80s. Opportunities would open up in the curves in various ways. The basis would move, and there was a variety of opinions about what would move the market. Now it's very much dependent on central bank behaviour, which is something not many traders have an inside scoop on. We've never been through a time when the interest rate on just about every major currency is around zero.

justinlardinois 10y ago

> Gross, who oversees the $1.5 billion Janus Global Unconstrained Bond Fund, recommended Bitcoin and gold for investors who are looking for places to preserve capital. Because wild Bitcoin fluctuations are somehow less akin to gambling than the securities market? Glad he also threw in some "buy gold" scaremongering too. Does Janus benefit somehow from this kind of talk?

tedunangst 10y ago
Janus benefits from being run by a thought leader.
duaneb 10y ago
> Glad he also threw in some "buy gold" scaremongering too. I'll bite; why is gold a bad investment? Does it not have low risk and stable value? Hell, these days it even has REAL value as a special metal.
- Mikeb85 10y ago
  It's value isn't that stable... It's just another commodity. It trades like a commodity, its not anything special, it's not currency, it's metal dug from the ground. People attribute way more importance to it than they should.
  - jklontz 10y ago
    True, but unlike other commodities it's easy to take a long position on gold with ETFs like GLD which actually store the physical gold. For other commodities (like oil with ticker USO) it's not so simple to take a long position. The best you can do is trade options, with the added risk of a contango market.
    - kasey_junk 10y ago
      You are potentially overselling the "store physical gold" component of GLD depending on what you think the redemption rules of the fund are. As per usual Kid Dynamite is my favorite writer on the subject: http://kiddynamitesworld.com/why-is-gld-so-hard-for-people-to-understand-an-etf-lesson-part-iii/ http://kiddynamitesworld.com/why-is-gld-so-hard-for-people-t...
  - endswapper 10y ago
    I'm no gold-bug. It's value is relatively stable. The fact that it is a commodity, or that it is not a currency, has nothing to do with its value. It is special, in the sense that is is both a precious metal and an industrial metal, and it is also a common store of value, i.e. gold reserves. Many incredible, valuable things are "dug from the ground." Gold is not a bad investment as part of diversified portfolio. To justinlardinois's point, the stability and risk duaneb refers to, are reasons fearmongers encourage divesting other holdings in to gold in times of instability.
endswapper 10y ago
His argument is that economies that rely too heavily on monetary policy are unsustainable. Furthermore, he is suggesting that we are nearing a tipping point when there is abundant competition for meager returns that should be temporary. The traditional roles and functions of the bond market in economies around the world have been perverted by policy. At some point investors will exhaust the risk threshold in bond markets, and arguably, tap less traditional markets like Bitcoin simply because they are a counterpoint to the bond markets.
- michaelchisari 10y ago
  How are economies that literally have no monetary policy a better alternative, though?
  - jbarham 10y ago
    Quoting from the article: "At some point investors – leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives."
  - endswapper 10y ago
    I'd argue that they are not. It's more about the proper measure. Monetary policy is a tool attempting to hit a moving target.
    - mattnewton 10y ago
      > Monetary policy is a tool attempting to hit a moving target By sweeping the ice in front of the economy-puck with a toothbrush. There is an effect, just a lot of other stuff has a big effect too...
  - WalterBright 10y ago
    The US had no monetary policy for the first 100 years of its existence, going from subsistence farming to superpower.
woodpanel 10y ago
> Does Janus benefit somehow from this kind of talk? Maybe in terms of marketing itself as having sway in how to interpret things. Lets call it PR. These kind of statements show a helplessness from old thought leaders. It shows that we can't continue to explain today's world by 1929 analogies. It smells like Black Swan. But maybe the Black Swan is just that we at some point realize, that we were cargo culting for the next gloom and doom to happen. Edit: if you downvote please have the sophistication and argue why.
Bud 10y ago
Gross also recommended that folks tune in to Glenn Beck for even more savvy financial advice.
candiodari 10y ago
Here is the source: https://www.janus.com/insights/bill-gross-investment-outlook https://www.janus.com/insights/bill-gross-investment-outlook How does he benefit ? The way to win on the stock market is sometimes and somewhat cynically referred to as OPM (other people's money). Bill Gross has managed to convince a few large clients to invest in bonds through him (their money - his decisions) and has made quite a bit of money because of a sustained streak of good decisions. How does he benefit ? By convincing more people to put their money in one of his funds. A more balanced report of what he's talking about is possible. Right now he feels that it is a necessity for capital preservation to be well protected against a large downside (which would translate into a big surge in interest rates). On the one hand "past performance is not an indicator of future performance", on the other hand, it would be foolish to ignore this voice. People should realize what the cost of "stimulating the economy" has been : long-term low-risk investments have done extremely poorly for 10, even up to 15 years in some cases. High-risk investments have done well, but with several big "oops" moments that challenge capital preservation. Combined with this, regulation of pension and bank investments across the globe have emphasized capital preservation and forced these organisations to put significant investments in low-risk-and-now-extremely-low-yield investments. This currently means, if you're under 35-40, you effectively don't have a pension if you're not in the 0.1% (ie. you're not a director at least ? You don't have a pension). That age is going up, and it's not like it's doing any favors for people who are older. In other words: we've forced banks and pension funds to move away from "more risky" things, nonzero odds of failure for certainty of far-off failure. We have decided to have an almost-certain failure of our pension systems, so governments can spend more today "to save the economy". That save part is in quotes because while people were quite certain that was what they were doing 8 years ago, let's say that the enthousiasm for this viewpoint has gone below freezing in the past year or two. A more cynical person might say that governments have decided that while they will constantly loan money, they will no longer pay interest. Bill Gross' critique is that this is the feedback mechanism that balances governments spending against private sector growth spending (because the government is a negative for the economy. It's a necessity, roads, healthcare, etc, but a negative. If the public sector grows "too much", as history has proven time and time again, a total crash follows). Assuming there's no total crash (because you don't prepare for that. If that happens, it's over and what you did or did not do doesn't matter. So you prepare for the other options), what people are predicting will happen, given the models of 1972, 2001, 2008 and even before 1929 and the like is that a sudden massive inflation spike will occur coupled with a fall in asset prices (like houses and ...), and especially a fall in stock prices.
roymurdock 10y ago
It's called talking your book. See this thread [1] from the last time Bill Gross said that banking and finance are "permanently damaged" a little under a year ago. He's bombastic and clickbaity and it attracts money from likeminded, bearish investors. [1] https://news.ycombinator.com/item?id=11217860 https://news.ycombinator.com/item?id=11217860
- Steko 10y ago
  Gross's fund at PIMCO had terrible years in 2011 and 2013 and his new fund at Janus is underperforming the Barclays Aggregate Bond Index, so he needs both a scapegoat and a class of marks who will still buy in despite the performance. The Fed provides a convenient target to blame bad performance on, especially for Gross given his 2013 misread of Fed unwinding. As far as potential investors go, much of the country club set are sympathetic to the broader narrative of the capitalist hero (the guy literally refers to himself as 'Secretariat' and Justin Bieber of the bond market) beset by meddling bureaucrats and there's a smaller but much more enthusiastic group of devoted monetary cranks who really eat this stuff up.
ddeck 10y ago
That was a surprisingly sensational interpretation by Reuters of the original quote. Looking at the source, he didn't recommend these assets. What was actually wrote was: "At some point investors — leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives. Bitcoin and privately agreed upon block chain technologies amongst a small set of global banks, are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms. Gold would be another example — historic relic that it is. In any case, the current system is beginning to be challenged"
- justinlardinois 10y ago
  That's certainly a different sentiment that the Reuters quote. But even if it's not an endorsement of Bitcoin and gold, it's still problematic because he's saying that scarcity implies stability, which simply isn't true.
  - solotronics 10y ago
    Already bitcoin has been more stable (and increased in value) over the last year compared to many central bank issued currencies.
    - mark_edward 10y ago
      You understand stable and increased in value form a contradiction?
      - deleted 10y ago
        [deleted]
      - Luc 10y ago
        Stable in purchasing power hence increased value vs currencies that lost purchasing power.
3327 10y ago
Yes Equity markets go down and money typically moves into bonds via large funds. And bond ASK prices go up since quality bonds like IBM, GOOG or gov't become high demand.

danblick 10y ago

Reminds me of "the ludic fallacy": https://en.m.wikipedia.org/wiki/Ludic_fallacy https://en.m.wikipedia.org/wiki/Ludic_fallacy Which points out... Casinos are sometimes a bad model for randomness in the real world. In a casino you have only "known unknowns", but in the real world it's "unknown unknowns" that often cause problems.

pdkl95 10y ago
From that wiki page: > gravitating towards mathematical purity and failing to take various aspects into account Mark Blyth puts a lot of blame specifically on the "seductive" quality of mathematical models. https://www.youtube.com/watch?v=hmWbkPezgtU https://www.youtube.com/watch?v=hmWbkPezgtU It may be beautiful math, but that doesn't mean it actually models anything useful with any amount of accuracy and precision. Combine that with the social inertia and status-quo-preserving reactions of the people who created or used the bad models, and you get our current economic situation.
ikeboy 10y ago
Plenty of people have exploited casinos' unknown unknowns (first card counting, then other tricks)

ry4n413 10y ago

gross is a living legend

throwaway98237 10y ago
It's true, his "Investment Outlook" is one of my favorite things to listen too.

throwaway98237 10y ago

"have become"... Lmao here. Any cursory study into the history of financial markets will show that they've always been "casinos".

WallWextra 10y ago

I bet PIMCO is really happy they kicked him out, now that he's promoting Bitcoin.

Hydraulix989 10y ago

How hasn't that been the case unless you just invest in the index? Is it just that much harder to "seek alpha" now?

kelvin0 10y ago

Well HFT is going to fix all that ... * cricket chirps

kaycebasques 10y ago

Has anyone looked into his argument that zero percent interest rates destroy business models that underpin our economy (I.e. insurance)?

jbarham 10y ago
The entire finance industry has been saying this is a systemic risk since ZIRP was instituted in 2008 if the economy didn't achieve "takeoff velocity". Here we are eight years later still under ZIRP and even NIRP (which is completely unprecedented) so the systemic risk is only bigger.
mathattack 10y ago
Low interest rates (at least with a yield curve) can help banks. Banks that can borrow short term and pay near zero, and lend long term (say a mortgage) with a higher rate can make money in this environment. Insurance and Pensions are trickier, and it gets to the point of real (inflation adjusted) versus nominal returns. If an insurance company needs to invest against a real returns, than a 3% interest rate with 0% inflation is the same as 7% with 4% inflation. This is how we should think of our 401Ks - as long as we maintain purchasing power, the # of the rate doesn't matter. (Rates rise when inflation rises and goes down when it shrinks) The flip side is if insurance companies or pensions make nominal promises ("Give us 10% of your income per year, and we'll invest it guaranteed at a 5% return") then it becomes problematic. But in a low rate environment, people shouldn't be making these kinds of promises. The strange thing about this whole article is why now? Why are the financial markets more of a casino than in 1999 or 2007?
- forgetsusername 10y ago
  If banks make money off the interest rate spread, how does the absolute level of rates matter (outside of misjudged future rising rates)?
  - TheSpiceIsLife 10y ago
    I think it goes something like this: Low interest rates cause debt inflation. People can borrow increasingly more as rates go down. As rates go down, the spread doesn't change, but the value of the loans increases. Maybe someone more knowledgeable can fix me up here.

qwrusz 10y ago

Financial markets have always been casinos. I think what Bill means is that central banks have now taken a seat at the casino's table. If a whale sits down next to you at the casino and starts playing unorthodox strategies and betting crazy and distracting the dealer - well some old folks don't like that. Side note: Read Bill's bio, he is a very good gambler, especially blackjack.

lappa 10y ago
Being a very good blackjack player doesn't mean much. You can follow a relatively simple set of instructions to maximize expected value.
- qwrusz 10y ago
  You are correct. Depending on one's definition of "very good" blackjack player it doesn't mean much. Casinos even allow players to bring those little instruction cards to the table while they play. I am not talking about max expected value. I am talking about exceeding max expected value. Being a "very good gambler". TL;DR I am talking about alpha. not beta. beta doesn't mean much. alpha means everything here.
toomuchtodo 10y ago
If you're playing against someone whose pockets have unlimited depth, why would you play at the same table? How do you succeed when the rules can change like the winds shifting? That's what "old folks" don't like.
- qwrusz 10y ago
  Why do people go to casinos? How does such a business even exist. People know the odds are against them and go and play anyway.
qwrusz 10y ago
The Reuters headline and article are misleading. I was trying to help add context/some clarity based on what Bill actually said. But seeing the multiple downvotes to my comment, it appears I may have miscommunicated. I am fallible, and only have 5 years experience as a professional bond trader so it's likely others on here have more experience and I welcome the chance to learn. The headline makes it sound like markets have suddenly become a casino. That's not correct. The headline cuts off the rest of the sentence changing the meaning. The key point is markets have become a casino which are now using a Martingale-like system that is deceptively risky and intractable once started. Hence he titled the letter "Doubling Down". Link to original: https://www.janus.com/insights/bill-gross-investment-outlook https://www.janus.com/insights/bill-gross-investment-outlook Financial markets have always been a casino. Do people disagree with this? You bet money, make an educated guess about the future, if you are lucky and guess outcomes right you end up with more money. If you guess wrong you end up with less money. Win or lose you pay transaction costs (a rake, the vig, commission, spread, etc..) Bill Gross has some great Investment Outlooks over the years still worth reading. Couple favorites: "But let me admit something. There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne. All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience." https://www.pimco.com/insights/economic-and-market-commentary/investment-outlook/a-man-in-the-mirror https://www.pimco.com/insights/economic-and-market-commentar... https://www.pimco.com/insights/economic-and-market-commentary/investment-outlook/time-to-vote https://www.pimco.com/insights/economic-and-market-commentar... https://www.janus.com/insights/bill-gross-investment-outlook/january https://www.janus.com/insights/bill-gross-investment-outlook...

bluetwo 10y ago

I think this is a result of the frustration Gross has with central banks printing money. He is mad that it makes it difficult to make money in bonds, but no one under 50 cares about this. A side-effect is that it makes stock prices go up regardless of the underlying value. This people care about so this is the message he keeps spreading. Negative interest rates, which he is also concerned about, are insane. People would be rioting in the streets if they really understood how this inflates value for those who have money and inflates debt for those who owe.

toomuchtodo 10y ago
While you might not care about bonds if you're under 50, surely you care about the overinflated value you're pouring into real estate (your home) or equities (your retirement) if you're under 50, whose prices are going to deflate quickly when the Fed raises rates. If Congress won't use policy to push wages up, thereby stoking consumer demand, we will be condemned to stagflation and never ending asset froth/bubble/pop cycles. The Fed has run out of tools in their belt. If it took pushing benchmark rates close to zero to get the US economy humming again, and we're still close enough to zero to call it zero, what happens if another economic slowdown occurs?
skybrian 10y ago
Don't you have that backwards? Low interest rates are good for debtors - they pay less interest. Negative interest means you're being paid for borrowing.
- rayuela 10y ago
  Yup. I think they've confused inflation rates with interest rates. When is low interest rates bad for borrowers (growth outlook aside)? Inflation definitely has the inverse relationship, where a higher inflation rate is better for borrowers.
- bluetwo 10y ago
  Low interest rates are good (you could argue) but negative interest rates make it harder to GET dollars to pay back your loans because the value of each dollar is more. Imagine if you borrow 200k for a house and when you sell it you can now only get 150k, or if you take a new job and the market for your skills pays 20% less than it used to. Negative rates distort things in weird and unintuitive ways.

jnordwick 10y ago

Remember, the Fed only targets the low end of the yield curve with any ability (literally overnight lending), and sometimes it doesn't even do that well. Just look at the spread between the the overnight rate and the target rate to see how far off they are at times. Anything past that down the curve is far more driven by economic forces and inflation (which, yes the Fed does control/target however you want to word it, but only really pathetically). Even the 30-day paper whips around far more than the Fed has handles on. Gross is just hurt because he's getting dragged across the coals lately. Never take advice about markets not working / being irrational / etc. from somebody underwater. Corollary: never listen to how the markets are brilliant / doing the right thing / blah blah from somebody holding a winning position either. Find the guys who are getting taken to the cleaners and trying to understand why and reevaluating their situations. You'll learn a hell of a lot more from them.

hmoghnie 10y ago

Always been.