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Bill Gross: Perpetual Bull Market Enthusiasm To End
Aspire, Thought Leaders | 15 May 2015
By: Lim Si Jie
Articles (169) Profile

“As it is, in 2015, I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang,” Bill Gross wrote in his monthly letter to investors at Janus Capital Markets. The legendary bond investor Bill Gross who left Pacific Investment Management Company (PIMCO) for Janus expressed his concerns about the global bull run.

In his monthly letter to investors, the bond guru at Janus Capital Markets compared the current bull market run to a 70-year-old man like himself. According to Bill Gross, “turning 70 is something that all of us should hope to do but fear at the same time.” the exact same feeling investors should feel about the current bull market run.

Bull Run Will End, Soon

Successful investment gurus have also been talking about 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 mentioned about “low future returns” and a possible “bang” or crash that might happen in the future.

“Savour this bull market” moment because it will not come again for any of us, this is what Gross and most investors feel right now. They all talked about a “great unrest” that would be possible in face of a “bubble popping.” Gross assures that this is “not another Lehman crash” but more like a correction of “perpetual bull market enthusiasm.”

QE: Debts Cannot Cure Debts

However, at Grant’s Interest Rate Observer quarterly conference in NYC, policymakers and asset market bulls spoke of the possibility of normalization – a return to two percent growth and two percent inflation in developed countries.

Gross certainly does not agree as he points out how developed countries have been depending on the “less than commonsensical notion” that a global debt crisis can be cured with more and more debts.

Bill Gross equates such a notion as “pouring lighter fluid onto a barbeque of warm but not red hot charcoal briquettes in order to cook the spareribs a little bit faster.” Historically in Gross’s experience, it results in the form of burnt ribs instead.

Gross feels that Quantitative Easing (QE) as a monetary policy will not work out, looking at the case of Japan and now the US. As such, he is skeptical about the Euro-zone’s QE to work out for them any better.

Assets Will End First

The lacklustre global growth, absence of positive rates and a perpetual debt crisis paint a very clear picture with a “sense of an ending” for asset markets. Gross finds it amusing that bonds were called as “certificates of confiscation” during the early 1980’s and the yields were on the average, 14 percent.

With bonds and many stocks promising so little returns for so much risk presently, Gross states that “credit based oxygen is running out.” The market is at a point where Gross terms as “an Everest asset price peak” and he advises investors to “get down off this peak” before it is too late.

What Should A Rational Investor Do?

Since “capital gains have dominated historical returns”, both investors and investment managers tend to focus on areas where they foresee most capital gains. However, they fail to see that such investments tend to be riskier.

Looking forward, a successful investment portfolio for the next 35 years will be one that “refocuses on the possibility of periodic negative annual returns”. That is to say that investors should understand that returns might not always be positive.

How To Capitalise On A Market Reversal

Most investors are familiar with taking long positions on the market. But what should be done when the market reverses? Investors can take short positions to capitalise when the market is on a downtrend.

Just like the name suggests, Inverse Exchange Traded Funds (ETFs) increases in price when the market tanks, i.e. when the market falls, inverse ETFs rise. When the market rises, inverse ETFs fall in price.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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