Writing in Barron’s, Bill Gross of Janus warns of the dire financial consequences of an aging population and suggests some investment implications. Maintaining that “demography rules,” Gross explains: “The U.S. government has currently outstanding debt of approximately $16 trillion or close to 100% of GDP. The present value . . . promised under existing programs totals $66 trillion or another 400% of GDP. . . . We are broke and don’t even know it.”
Responding to politically popular debt rhetoric, he notes, “reducing the growth rate of current government debt does little to help what in essence is a demographic not a financial problem: too few Millennials to take care of too many Boomers.” The “dependency ratio” (retirees to workers) “soars from 0.25 retirees for every worker to 0.35 over the next 10 years.”
Gross highlights a few investment implications:
- Due to the developing world’s younger demographic, “developed nations could and should transfer an increasing percentage of their financial assets to emerging markets to help foot the demographic bills back home,” so over the long-term he advises “think about increasing your asset allocation to the developing world.”
- Based on the probability of higher wages for Millennials, he suggests: “an investor should go long inflation and short fixed coupons,” noting that “a 10-year TIPS at 80 basis points seems like a good hedge.”
- Finally, he observes: “health care should thrive, while liability handcuffed financial corporations such as insurance companies as well as the bonds of underfunded cities and states . . . should not.”
Bond guru Bill Gross says central banks across the globe are playing a “shell game” with financial markets. And once the game ends, he thinks markets are likely to tumble.
Bond guru Bill Gross says that, once the global flood of quantitative easing ends, we could be in for another liquidity crisis.
In the aftermath of the 2008 financial crisis, bond guru Bill Gross spoke of a “New Normal” for US economic growth. Now he’s talking about the “New Neutral” for interest rates, and the impact it will have on investors.
A number of the world’s top investment strategists recently gathered for Barron’s annual roundtable to offer their thoughts on where the economy and markets are heading. David Herro, Abby Joseph Cohen, Bill Gross, and Marc Faber were among those who participated, and overall the mood was subdued. “On the whole, they expect interest rates to stay unnaturally low, and the U.S. to lead the world in economic growth,” writes Barron’s Lauren R. Rublin. “Yet, they doubt that will translate into robust gains for the stock market. Scott Black’s expectation that the Standard & Poor’s 500 will return 10% this year — an 8% price advance and a 2% dividend yield — was as rosy as it got. Marc Faber, we feel compelled to warn you, thinks the market already has made its high for 2015.”
Barron’s also included one-on-one interviews with many of the strategists. In the clip below, Gross talks about his outlook for how the current global debt overload will play out, and discusses where investors should be looking right now.
Bond guru Bill Gross says that the good times are over for investors, and is indicating that he believes the bull market will end sometime this year.
Bond guru Bill Gross says he thinks economic growth will fall to 2% for the US, thanks to tumbling oil prices.