- Legendary investor Bill Gross has said investors in stocks and crypto assets are in a dreamland.
- He told the Financial Times central bank monetary policy is dangerous and is driving euphoria in markets.
- Criticism of the Fed’s policies has grown louder after US inflation soared to a 31-year high in October.
Famed investor Bill Gross has said ultra-loose monetary policy from central banks has caused worrying euphoria in a range of markets from stocks to crypto assets, saying investors are living in a “dreamland.”
“It’s dangerous,” the co-founder of bond giant PIMCO told the Financial Times, on the subject of monetary policy. “It’s all dreamland that’s been supported by interest rates that aren’t where they should be.”
Gross went as far as to say that the entire financial system could collapse if interest rates are not raised and huge bond-buying programmes are not scaled back, because people will stop saving.
“One of these days, one of these years, or one of these decades, the system will collapse, because capitalism depends on savers saving and investing,” he told the FT.
Gross is now retired, but manages his own money, earlier this year making millions betting against GameStop. He was once known as the “Bond King”, having co-founded the $US2 ($AU3) trillion asset manager PIMCO in 1971.
The legendary investor is one of a number of big names in markets to have raised concerns about global central banks’ monetary policies.
US inflation shot up to 6.2% year-on-year in October, its highest level in 31 years, fueling concerns that the government and the Federal Reserve have overstimulated the economy.
Gross’ former colleague Mohamed El-Erian said last week the Fed has made one of the worst calls in its history by dismissing inflation as transitory.
“They got stuck on the narrative and held onto it for too long,” El-Erian told Bloomberg TV. “And the result of which is they’re looking at inflation that is much higher than they ever expected … much broader than they expected … and that’s going to last even longer than they expected.”
Gross said he did not think inflation would stay as elevated as it is currently, but said he thinks it’s likely to remain above the Fed’s 2% target, the FT reported.
Yet he said the Fed may not be able to tighten monetary policy quickly, given the state markets are currently in, with US stocks and cryptocurrencies around record highs.
“I think [Fed chair Jay Powell] is captive to the financial markets, and so he will gradually creep out of buying bonds, and next year he maybe gradually raises interest rates,” Gross told the FT.
Financial markets currently expect the Fed to raise interest rates for the first time in June 2022, according to CME Group’s FedWatch tool.
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