Bill Gross is warning … after ‘milking the system’.

Posted: 4th Dec 2014
Author: Willem Middelkoop

pimco-27_image001Since the credit crisis world central banks balance sheets grew by some $10 trillion ($10,000 billion). Since money can only be created as (new) debt the total amount of debt (treasuries) grew by $10 trillion as well.

This debt (US Treasuries, BOJ-bonds etc) are managed by the likes of Bill Gross (ex-Pimco etc.). Because these bond traders/money managers charge around 1% yearly fee’s their gross income grew by 100 billion since 2008/2009. Because Bill Gross is/was the master of this universe he collected up to <1%.

That explains why Forbes ranks Gross as ‘the 188th richest American last year, and his net worth is around $2.2 billion’. Just like his Wall Street buddies Gross decided to ‘milk the system’ as long as possible before jumping ship and starting to warn about the financial endgame.

Today Zerohedge explains the legendary bond investor is ‘absolutely spot’ about his warnings in his latest investment outlook:

‘How could they? How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt? How could fiscal authorities have stood by and attempted to balance budgets as opposed to borrowing cheaply and investing the proceeds in infrastructure and innovation? It has been a nursery rhyme experience for sure, but more than likely without a fairytale ending. Here is the full letter (link):

 But each of these central bankers is trying to achieve the same basic objective: Solve a debt crisis by creating more debt. Can it be done?…

 “Can a debt crisis be cured with more debt?” it is difficult to envision a return to normalcy within my lifetime (shorter than it is for most of you). I suspect future generations will be asking current policymakers the same thing that many of us now ask about public smoking, or discrimination against gays, or any other wrong turn in the process of being righted.

How could they? How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt? How could fiscal authorities have stood by and attempted to balance budgets as opposed to borrowing cheaply and investing the proceeds in infrastructure and innovation? 

 Investors may want to begin to take some chips off the table: raise asset quality, reduce duration, and prepare for at least a halt of asset appreciation engineered upon a false central bank premise of artificial yields, QE and the trickling down of faux wealth to the working class. If the nursery rhyme theme is apropos to the future, as well as the past, investors should remember that while “Jack and Jill went up the hill,” that “Jack fell down, broke his crown, and Jill came tumbling after.”

Someday soon, perhaps.’

-William H. Gross

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