Gross warns global markets, economies increasingly
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[February 03, 2016]
By Jennifer Ablan
NEW YORK (Reuters) - Bill Gross, the
closely followed investor at Janus Capital Group, said on Wednesday that
global markets and economies worldwide are feeling the after-effects of
mismanaged monetary policies, which will only be exacerbated by low or
negative interest rates.
In his latest Investment Outlook, Gross said global markets and
individual economies are "increasingly addled and distorted."
Gross said major central banks including the Federal Reserve, the
European Central Bank and the Bank of Japan seem to believe there is
an interest rate so low that resultant financial market wealth will
ultimately spill over into the real economy.
"Today's Fed and other model-based central banks are, to my way of
thinking, the ones that have more and more become 'increasingly
The BOJ recently joined the ECB and the central banks of Sweden,
Denmark and Switzerland in negative-rate territory.
"What I will commonsensically ask is 'How successful have they been
so far?' Why after several decades of 0 percent rates has the
Japanese economy failed to respond? Why has the U.S. only averaged 2
percent real growth since the end of the Great Recession?" Gross
"'How's it workin' for ya?' – would be a curt, logical summary of
the impotency of low interest rates to generate acceptable economic
Gross laid out several more examples, saying bankruptcy is "just
around the corner" for Venezuela due to low oil prices and policy
mismanagement. "Current oil prices are, in significant part, a
function of low interest-rate central bank policies over the past 7
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Puerto Rico, Gross said, also facing default risk due to
overspending, the overpromising of retirement benefits, and the
inability to earn adequate investment returns due to ultra-low
global rates. Gross said Brazil is in deep recession due to low
commodity prices, a government scandal and in this case,
exorbitantly high real interest rates to combat the effect of low
global interest rates, and currency depreciation.
Another example is Japan, grappling with a government debt-to-GDP
ratio of 260 percent. Gross also cited the euro zone's "Whatever it
takes," "no limit," monetary policies.
Gross said China faces a total debt/GDP as high as 300 percent;
under the table capital controls; the loss of $1 trillion in
reserves to support an overvalued currency; "a distorted economic
model relying on empty airports, Potemkin village housing, and
investment to GDP of 50 percent, which somehow never seems to
transition to a consumer-led future. Increasingly, increasingly
(Reporting By Jennifer Ablan; Editing by Chizu Nomiyama)
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