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"Negative returns and principal losses in many asset categories
are increasingly possible unless nominal growth rates reach
acceptable levels," Gross said in his latest Investment Outlook
note published Wednesday.
"I don’t like bonds; I don’t like most stocks; I don’t like
private equity. Real assets such as land, gold, and tangible
plant and equipment at a discount are favored asset categories."
Gross, who runs the $1.5 billion Janus Global Unconstrained Bond
Fund, said capitalism cannot function efficiently at zero-bound
rates.
He reiterated that low interest rates may raise asset prices,
but they destroy savings- and liability-based business models in
the process.
"Banks, insurance companies, pension funds and Mom and Pop on
Main Street are stripped of their ability to pay for future
debts and retirement benefits," he said. "Central banks seem
oblivious to this dark side of low interest rates. If maintained
for too long, the real economy itself is affected as expected
income fails to materialize and investment spending stagnates."
Overall, global monetary policies cannot succeed without nominal
growth, Gross said. "The reason nominal growth is critical is
that it allows a country, company or individual to service their
debts with increasing income, allocating a portion to interest
expense and another portion to theoretical or practical
principal repayment via a sinking fund," Gross said.
"Without the latter, a credit-based economy ultimately -devolves
into Ponzi finance, and at some point implodes. Watch nominal
GDP growth."
Gross said in the United States, 4-5 percent GDP growth is
necessary, in the euro zone 3-4 percent GDP growth and in Japan
2-3 percent GDP growth.
(Reporting by Jennifer Ablan; Editing by Andrew Hay)
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