Bill Gross, the Janus bond guru and legendary investor, thinks that America has two imprisonment problems.
The first, wrote Gross in his new monthly Investment Outlook out Tuesday, is the literal incarceration rate in the US. The second is the trap of ever-growing debt that has ensnared the US and global economies.
On the first problem, Gross said in the letter that while he did not necessarily agree with the protest of San Francisco 49ers quarterback Colin Kaepernick, who has knelt during the US National Anthem this NFL season, the words “Land of the Free” in the anthem ring false to the investor.
“I quarrel however, with the part about ‘Land of the Free’,” wrote Gross.
“Free? For almost all of us — ‘yes’ — but for 3+ million of us? Not really. Take a look at Chart I, and be honest if your eyes don’t bug out. More than any country on Earth — in total numbers, or as a percentage of the population, Americans are incarcerated, imprisoned — freedomless.”
Gross said that while some of these people in prison are most likely justified, there are many more that are in prison due to an unjust system, most notably mandatory sentencing laws and the private prison system.
“The privatization of prison management and ownership is even more damning,” said Gross. “‘Orange Is the New Black’ focuses on race and classism themes, but there’s more to the show than that. I’d affirm lead character Aleida Diaz when she says, “We a for-profit prison now. We ain’t people no more. We bulk items, sardines in a can.'”
Much like the prison-industrial system, said Gross, the US economy is trapped by central bank’s low interest rate policies and growing debt.
“Well, solving the ‘Orange Is Not Free’ dilemma may take time just as the solution to a global debt crisis (now seven years running) may take even longer,” wrote Gross.
Gross said that the debt trap has been exacerbated by central banks unwillingness to raise interest rates while hoping for growth, which has only hurt the economy in the long run. He also highlighted eight solutions from central banks and governments that have so far not worked, ranging from quantitative easing to simply passing the buck to the younger generation.
Additionally, Gross said that President-elect Donald Trump’s plan for the US economy is no different than previous proposals and will likely be just as unsuccessful. From the letter:
“There’s no doubt that many aspects of Trump’s agenda are good for stocks and bad for bonds near term — tax cuts, deregulation, fiscal stimulus, etc. But longer term, investors must consider the negatives of Trump’s anti-globalization ideas which may restrict trade and negatively affect corporate profits. In addition, the strong dollar weighs heavily on globalized corporations, especially tech stocks.”
Thus, with no new ideas to solve the debt trap in sight, the US economy will remain much like the 3 million Americans in prison.
“On TV, ‘Orange Is the New Black’ yet, in the markets, ‘Red’ (in some cases) may be the new ‘Green’ when applied to future investment returns,” concluded Gross. “Be careful — stay out of jail.”