Photo: Bloomberg TV
Bill Gross’s new June Investment Outlook is out. Titled Wall Street Food Chain, the report explains how big players in the markets (the 1 per cent) basically feed off and take advantage of everyone else (the 99 per cent).However, he uses the imagery of a whale to describe the big players.
Lately, the term “whale” has been associated with JP Morgan’s Bruno Iksil, who reportedly took huge risky wagers that cost the bank billions. In many circles, “whale” is an unflattering term used to describe wealthy gamblers who tend to lose money.
We’re pretty sure that’s not exactly what Gross was intending because he refers to himself as a whale in his note.
Here’s the excerpt:
The whales of our current economic society swim mainly in financial market oceans. Innovators such as Jobs and Gates are as rare within the privileged 1% as giant squid are to sharks, because the 1% feed primarily off of money, not invention. They would have you believe that stocks, bonds and real estate move higher because of their wisdom, when in fact, prices float on an ocean of credit, a sea in which all fish and mammals are now increasingly at risk because of high debt and its delevering consequences. Still, as the system delevers, there are winners and losers, a Wall Street food chain in effect.
These economic and/or financial food chains depend on lots of little fishes in the sea for their longevity. Decades ago, one of my first Investment Outlooks introduced “The Plankton Theory” which hypothesized that the mighty whale depends on the lowly plankton for its survival. The same applies in my view to Wall, or even Main Street. When examining the well-known wealth distribution triangle of land/labour/capital, the Wall Street food chain segregates capital between the haves and have-nots: The Fed and its member banks are the metaphorical whales, the small investors earning .01% on their money market funds are the plankton. Yet similar comparisons can be drawn between capital and labour. We are at a point in time where profits and compensation of the fortunate 1% – both financial and non-financial – dominate wages of the 99% and the imbalances between the two are as distorted as those within the capital food chain itself. “90-nine for the one” and “one for the 90-nine” characterises our global economy and its financial markets in 2012, with the obvious understanding that it is better to be a whale than a plankton. Not only do Wall Street and Newport Beach whales like myself have blowholes where they can express their omnipotence as they occasionally surface for public comment, but they don’t have to worry as yet about being someone else’s lunch.
The rest of Gross’s note reiterates his cautious stance in a deleveraging world. Here’s what he recommends:
Bond investors should favour quality and “clean dirty shirt” sovereigns (U.S., Mexico and Brazil), for example, as well as emphasise intermediate maturities that gradually shorten over the next few years. Equity investors should likewise favour stable cash flow global companies and ones exposed to high growth markets.