Bill Gross Warns "China Is The 'Mystery Meat' Of Emerging Markets"

Tyler Durden's picture

"Financial systems are unstable with excessive risk-taking," warns PIMCO's now solo guru Bill Gross, telling Bloomberg TV's Stephanie Ruhle that in a "Soros reflexivity... Once you get the levered system going, it hardly knows when and where to stop." Credit, as we have noted, has been relatively more stable (though less positive on the the way up) Gross notes and "the way to get rich in the past was to borrow money and to lever [up]," but Gross explains that now, "assets are artificially priced... from this point forward, double-digit returns, getting rich on leverage, no. You better look elsewhere for – for your profits," and not Asia. China is "the mystery meat" of emerging market countries, Gross cautions, "nobody knows what’s there and there’s a little bit of baloney."





ERIK SCHATZKER: I think we’ve got to start in the most obvious of places. Why are risk assets correcting? What in your opinion is behind the sell off?

BILL GROSS: Well risk assets, financial systems are unstable with excessive risk taking on one hand and low returns on the other, which in turn encourages more risk taking. It’s sort of like Soros’ reflexivity. Once you get the levered system going, it hardly knows when and where to stop. And so that’s what we’re seeing. We have a highly levered global financial system with hedged positions that are moving back and forth based on emerging market countries and their growth rates or expected growth rates. And when those change, then positions change. And as levered positions change, you’ve got a lot of volatility and reflexivity, as Mr. Soros would have said.

STEPHANIE RUHLE: Why aren’t we seeing that kind of volatility in the credit markets? Yesterday Hyundai did an investment grade deal and it blew out, while I look at equities in emerging markets and they’re suffering. Why is everyone still piling into credit?

GROSS: Well credit is higher up on the stability hierarchy I suppose, Stephanie. It – it usually is thought of as a flight to quality, not necessarily corporate bonds or high-yield bonds but treasury bonds. And when investors want to park money in a supposedly safe haven, and we know that bonds aren’t necessarily safe all the time, they weren’t in 2013, but that’s where money goes. Money comes back to the center so to speak of the global financial network. And the center at the moment are one, two, three developed countries. That certainly includes the United States. And so we see treasuries being bought, treasury rates coming down under the assumption that the Federal Reserve will stay put for perhaps a long, long time.

SCHATZKER: Bill, what happens next? Would you call this just a bump in the road or have markets made a detour and we’re going to go down this new road for a while?

GROSS: Well I think we will for a while, Erik, meaning for a long, long time. We’ve talked about this with the new normal. The new normal really didn’t apply to the equity market last year, did it? Thirty percent was certainly not normal. But what we see going forward is a global marketplace and a global economy where growth is slow.


And to the extent that financial asset prices like stocks and other risk assets have anticipated that growth rate, that’s always a subjective judgement. And it was six to eight weeks ago. To the extent that that growth rate comes down, then risk assets become at risk and more volatility. So I think it’s all dependent upon a growth rate on the global economy. And certainly in the United States we saw some bad numbers over the past few days and we wonder whether or not that 3 percent growth rate in 2014 is for real.


So look at growth and look at inflation, by the way, for an indicator in terms of where the Fed goes. Because as we know, where the Fed goes, where quantitative easing goes and tapering and ultimately the policy rate, which is critical, where that goes is dependent upon not just growth but inflation. And so the inflation target numbers that we see close to 1 percent are clearly indicative of where bonds might rest and ultimately where stocks might go as well.



SCHATZKER: Bill, is that to say that nothing else has yet gotten cheap enough to tempt you?

GROSS: Well there’s no doubt that emerging markets are getting cheaper. The problem is emerging markets have problems. Take examples such as Brazil and Turkey. These are countries with widening current account deficits. These are countries which by necessity in order to stabilize their currency have to raise interest rates and put their economy at risk in terms of slower growth. So the question becomes whether a 13 percent three-year rate in Brazil relative to a 10 percent policy rate is an attractive situation. We think it’s getting there.


Brazil is not going anywhere in terms of straight downhill. It’s a country on the move, so to speak, and an important emerging market country, but to a certain extent it’s a fair question as to whether prices have been adequately discounting the slower growth that I speak to. I think we’re beginning to get there. The last wild card, Erik, in terms of emerging market space obviously is China. Is it 6 percent? Is it 7 percent? Is it 5 percent? I call China the mystery meat of emerging market countries. Nobody knows what’s there and there’s a little bit of baloney, so we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.

RUHLE: All right. Mystery meat is disgusting. I remember my high school cafeteria. Tell us what investors are doing in terms of inflows and outflows. They’ve gotten very spoiled in the last couple of years with all the central bank intervention. It’s been very cushy. So this week your phone is ringing and what are they saying?

GROSS: Well they’re saying we want safety in principal. This is a Will Rodgers idea, Stephanie, back in the ‘30s. Not so much concerned about the return on my money as the return of my money. What product does that represent in terms of that possibility? Something with a relatively short duration and something with relatively short credit risk or credit spreads. Unconstrained bond funds are one example at PIMCO that are garnering a lot of attention. I’ve been managing that recently and it’s doing really well.


The total return fund is doing really well. It’s up 1.5 to 2 percent for the month with some good stability and prospects for inflows. So bonds are back. They’re not all the way back, and I doubt they’ll get all the way back to the point of 16, 18 months ago in which interest rates in the 10-year was at 1.65. But bonds have a – have a stable position in almost all portfolios if only for diversification. So unconstrained bond funds, lower duration bond funds, diversified income, equities at some point. At PIMCO, yes, we’re promoting equities as well, and so there’s a place for all of them.


One last point though. I think the era of getting rich quickly is over, and I think almost that the era of getting rich slowly is over too. And so investors should simply bring down their return estimations and prepare for a little bit of volatility going forward.

RUHLE: So nobody’s getting rich anymore?

GROSS: Well not many. The way to get rich in the past was to borrow money and to lever hedge funds and levered corporate situations in terms of buyouts, et cetera, et cetera, or to buy the stock market in 2013, which itself is a levered type of investment. Corporations borrow 40 to 50 percent of their balance sheet. They lever up and you can buy equities in a levered type of situation. So leverage over the past 20 to 30 years, Stephanie, has really produced this total return, high return type of investment market that investors have grown used to. Pension funds think 7, 8, 9 percent is what they should expect, which means 4 percent from bonds and 12 percent from stocks. Not going to happen because basically we’ve been priced into the market. Assets are artificially priced. And from this point forward, double-digit returns, getting rich on leverage, no. You better look elsewhere for – for your profits.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
macholatte's picture


China is the Predator of Planet Earth. Everyone else is mystery meat.

Leveraged Algorithm's picture

The unconstrained bond funds are the "mystery meat". Full of derivatives and will suffer huge losses when Kyle Bass has the Japan default. High yield short duration - are you fucking nuts? Get ready.....

Wahooo's picture

Yep. They cook up shit and they don't even know what's in it.

Boris Alatovkrap's picture

Boris is one time travel in China. Food is get very very boring and more is grotesque. One day, restaurant is serve very delicious meat dish. Boris is ask waiter what is inside, but Boris is forget dictionary at hotel in room, so just nod head. Other dinner guest is also enjoy, so we are order more and more until so stuffing cannot move from table. So sit and talk, sit and talk, very laughter, gregarious moment. After hour or so, Boris is once again hungry and is remembering delicious meat dish, so is put on full plate and start eat again. Big mistake! Now is cool off, as Boris is take bite, is realization meat is not meat, but is deep fry testicle sack!

No, no, Boris just kidding! Actually, is deep fry pork fat. But is grotesque and now Boris is can never again to eat China epicurean.

TheGoldMyth's picture

Boris, you could ask for your money back from The People's Bank of China. Take "deep fry testicle sack" to owner (Central bank PBC ) and convert back into Yen.

aka_ces's picture

China is not monopoly on unappeal, USA persons habitate in cul-de-sacs.

TheGoldMyth's picture

Wahoo: Exactly like America where GMO want to remove labeling so people do not know if product is GM or not. Nobody would know what organism they are eating.It could be genetically modified/engineered chicken fetus pate and the labeling wouldn't say so. It might be sold as "Chicken Spread".

What is in "cooked up" in financial product is no different. 

Leveraged Algorithm's picture

Bill is fighting to keep assets as Pimco implodes.......Most work he has done in years.

TheGoldMyth's picture

macholatte: You need to look more closely at who owns the country or governs it. This is usually a central bank.
In modern times, governments and countries are not souvereign instead they are privatised/owned by their respective central banks that dictate to the governments what they want to happen. Policy and so forth. The word 'China' or the word 'America' are owned by a private central bank. One day, country names will be removed to avoid the confusing people like yourself. For instance, America will be called simply 'FED'. Another example is Greece, where instead of telling someone (In order to impress) that you are going to the greek islands for a holiday, you would say, i am going to the JP Morgan islands :-)

EDIT: Oops..MIstake. China would be called, The People's Bank of China, so people going on holdiays there would say "Hey!..I am going to The People's Bank of China, or, PBC  for a holiday!
From Wikipedia:
"The People's Bank of China (PBC or PBOC) is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China. The People's Bank of China has the most financial assets of any single public finance institution in history.[2]"

Superdude's picture

PBOC would be the term of choice, "The People's Bank of China" would require too much effort. This will not end lol.

TheGoldMyth's picture

 Superdude: It is easy for you due to your super strength, so i agree PBOC would reuire less effort/strength. :-)

You might agree then that it vastly beyond the capacity/strength of 99.99% of people to understand how to get their country back. Even really simple concepts like this quote from Ellen Brown.

"The difference is that a publicly-owned bank returns the interest to the government and the community, while a privately-owned bank siphons it into private accounts, progressively drawing money out of the productive economy. (pg 204)"

Most get extremely frightened by the concept if they are gold bugs that i have observed in my hobbyist capacity as a economic climate psychiatrist. All the more if, horror of horrors, it is suggested to them that the public credit currency would not need to be backed by gold. (that self same gold that the privately owned banks stole using publicly funded QE and various other means.)

It is a bit like Stockholm Syndrome. The battered gold bug is captured, held hostage by the central banks who own most of the gold. The reason for this is that they seem to know instinctively that if they do not help to defend the majority owner of the gold, being the privately owned central banks, then their own gold would cease to have as much value. It is a very complex issue i know, but in my spare time i still like to think about this very observation. I am sure someday, modern forensic economic psychiatric science will do justice to the current financial hostage situation the central banks have created. 

I guess ultimately my sentiment for gold has been negatively impacted. Even so, i still have compassion for the gold vigilante/bug while the remaining gold is confiscated via privately owned fiat currency/debt debt instruments at ever increasing rates, which might explain the extremely low inventories.



William Blacks Book, "The Best Way To Rob A Bank Is To Own One"

Some me further analysis by Ellen Brown and a link to the article.
By understanding that money is simply credit, we unleash it as a powerful tool for our communities.
By Ellen Brown
Global Research, October 29, 2010 29 October 2010

"The concept of money-as-a-commodity can be traced back to the use of precious metal coins. Gold is widely claimed to be the oldest and most stable currency known, but this is not actually true. Money did not begin with gold coins and evolve into a sophisticated accounting system. It began as an accounting system and evolved into the use of precious metal coins. Money as a “unit of account” (a tally of sums paid and owed) predated money as a “store of value” (a commodity or thing) by two millennia; the Sumerian and Egyptian civilizations using these accounting-entry payment systems lasted not just hundreds of years (as with some civilizations using gold) but thousands of years. Their bank-like ancient payment systems were public systems—operated by the government the way that courts, libraries, and post offices are operated as public services today."

From Wikipedia:

"Stockholm syndrome, or capture–bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending them. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness.[1][2] The FBI's Hostage Barricade Database System shows that roughly 8% of victims show evidence of Stockholm syndrome.[3]

Stockholm syndrome can be seen as a form of traumatic bonding, which does not necessarily require a hostage scenario, but which describes "strong emotional ties that develop between two persons where one person intermittently harasses, beats, threatens, abuses, or intimidates the other."[4] One commonly used hypothesis to explain the effect of Stockholm syndrome is based on Freudian theory. It suggests that the bonding is the individual's response to trauma in becoming a victim. Identifying with the aggressor is one way that the ego defends itself. When a victim believes the same values as the aggressor, they cease to be a threat.[5]

The Dunce's picture

China has been blowing up for forever and a day.  Yet it keeps chugging on.  I'm not holding my breath.  Doomsday will happen when the sun starts burning hydrogen in another 10 billion years.  Until then, we should be OK,

Skateboarder's picture

Skip to 11:30. Something weird about this guy.

PGR88's picture

Its his hair-cut.  The Left side goes well over his ear, but the right side is very short.

With his money, you would think he could afford a decent hair-cut.

steve2241's picture

I'm not sure what you're referring to, but it's been reported in the media that he takes medicine for epilepsy.

Tim_'s picture

"Whether it’s provided I can’t speak to until it’s been reported because it would be classified and I prefer that journalists make the distinctions and the decisions about what is public interest and what should be published" (Source).

"I don’t want to pre-empt the editorial decisions of journalists but what I will say is there’s no question that the US is engaged in economic spying" (Source).

"However, as I’ve said before I prefer for journalists to make those decisions in advance, review the material themselves and decide whether or not the public value of this information outweighs the sort of reputational cost to the officials that ordered the surveillance" (Source).

Freddie's picture

I like Snowden but did anyone notice how he begged off the question about how he got hired by the C-Eye-A?   More than a few people opined that he was a See-Eye - A op against the En-Ess-A.

stant's picture

ides of march. my father was 7th armour. my father inlaw 1st and 6th marine.i thank god for edward.i would rather be poor and free than live like a slave

Cacete de Ouro's picture

The more time passes, the more likely it seems that Christopher Walken and Bill Gross were actually separated at birth...

AdvancingTime's picture

Fast growth tends to mask flaws and weakness within a system, and China has been growing like a weed for years. To make things worse many of the investment decisions were driven by politics. This has created massive overcapacity. Money has been poorly allocated and often shoveled into deep holes like ghost cities and bridges to nowhere.

Currently a 6.6 trillion dollar spending spree used as stimulus to combat global economic slowdown is coming back to haunt China. This has greatly expanded credit and created huge overcapacity during the past five years. A massive debt crisis now looms in the offing as companies struggle to repay loans taken on newly built factories that sit idle because of weak demand. More on this subject below,

fijisailor's picture

It's hard to envision collapse in China with their huge share of the market for nearly every manufactured item.  Go to any country and simply view the assortment and quantity of products made in China.  Mismanagement and inefficiency on one hand but huge productive output on the other.  On top of that the information coming out of China is not believable and very few know what's going on within.

FreeMktFisherMN's picture

it's their proclivity to save (and in terms of PMs, evidently) that has carried them. They understand the value of savings, whereas Western nations are about borrowing and consuming. 

TruthInSunshine's picture

China is the "mystery meat." Battered, deep fried, General Tso's "Chicken."

Did it go "Woof! Woof!" "Eeek! Eeek! Or "Meow!"

NoDebt's picture

Translation:  I'm on the wrong side of this and out of ideas.

4shzl's picture

I'd guess this is his usual head fake, and that he's buying the 30-yr. as fast as he can.  

Dr. Engali's picture

I have a word for you to consider Bill.... Retirement.

syntaxterror's picture

How much mystery meat is in Bill's bond fund that yields 2.75%? Anyone even care to guess?

Cacete de Ouro's picture

high yield = extended quality = goat meat

syntaxterror's picture

Just checked and the yield is 2.47%. Oops.

disabledvet's picture

I think if you're a bank you can become more than rich restructuring debt and getting those mines, factories and energy plays moving.

I agree it won't be easy though.
Asset prices are all out of whack (no questions about California real estate in this interview?) and it's really hard for me to see how we get from "here" to "there" in the sense of being something other than a speculator.

A lot of risk on the table.
Some of the losses over the past six months have been truly spectacular.

And the leverage these clowns are playing around with...
well, what other asset is left as far as capital appreciation goes here?

A drop in yields to one half of one percent on the thirty year would make quite a statement.

Carl Popper's picture

China is the country of the future


and always will be.

FredFlintstone's picture

The future ain't what it used to be. Yogi

PGR88's picture


chump666's picture

Kinda makes me wonder why Faber is suggesting the 10yr for safe-haven, the bond markets could be in for trouble, if Asia starts implicating capital controls to stop their currencies collapsing and outflows, despite this "slowdown"

Philippines: 0402 GMT [Dow Jones] Bangko Sentral ng Pilipinas will raise overnight interest rates by 50 bps in the second half of 2014, according to most of 11 economists in a poll by The Wall Street Journal.


satoshi911's picture

Faber is rather consistent, stay with KING DOLLAR while he is king, ... problem is the exit, ... I suspect that FABER knows that the the US-Treasury is very liquid.

IMHO I follow the school to keep your $$$ in HKD which is 100% tied to UNCLE-SAM's nut-sack, but should the USD implode, HKD will become RMB ( tied to YUAN nut-sack ) over-night, ... that's the only safe bet.

I think that FABER wants to keep it safe.

Lastly, if FABER was to tell MORONS to NOT put their money into the US-TREASURY debt he would NOT be on USA MSM TV. FABER obviously get's great pleasure from being an expert/guru on TV, but the actions, that he is allowed to give the viewers are essentially KEEP YOUR MONEY IN THE USA.

On the other hand, privately him and Rogers say to 'diversify' your CASH.

Only 3 'AAA' currency, ... SGD, CHF, and NOK/CNY? Right?

chump666's picture

Interesting.  But in relation to Gross's fears and general fears that Asia is ready blow, or implode, taking the whole EM complex down with it.  I would 100% watch capital controls on EM/Asian outflows, this will have an impact on the so-called liquid bond markets for safe havens.  Remember Japan bond and stock meltdown June 2013?  This could happen in America and could destroy billions in seconds.  We are living in very dangerous time for markets.  The 80 on the DXY is drawn by the Fed, they know a USD crisis is stone throw away.  All and all this whole market could blow up spectacularly for ALL save havens, except  physical gold, being the only haven. 

satoshi911's picture

Only 3 'AAA' currency, ... SGD, CHF, and NOK/ (CNY?) Right?

It's a great narrative that all currency will collapse and everything is fucked just like the USA, but that's not how history show's it,...

When hyper-inflation comes money just moves.

Like Faber's great toilet bowl sloshing money from one bowl to the next India to UK, to USA, ....

You have to diversify, and there is NO reason that those with 'AAA' will take the hit. It's a great narrative that when the USD fails that everything else fails, but I don't buy it and history say's other wise, ...

We all wait and pray ... for when the USD/USA goes tit's up, sadly it may not happen in our lifetime.

King DOllar is backed by the most homocidal armed MOFU in all of human history, and he's not going to shut up or go away silently.


I don't buy a black-swan, just like its been since the 1970's, just more loss of USD buying power, and the USA descends into a FEUDAL nation, and keeps funding the FSA to keep the convicts in their homes.

Japan has pulled it off for 30 years now,... certainly the USA will do the same. FIAT to INFINITY in secret, and Tapered in PUBLIC.

Those 'banking' on a black-swan collapse of the USA will be dissapointed, ... a CIVIL-WAR, yes but that is just because the USA is desperate for a RESET, and now with the lack of conscription you can't even send them off to die in foriegn wars anymore.

The USA will just get more Orwellian and harder to leave.

Most likely MILLIONS will be sent to FEMA-CAMPS in HILLARY-2016  and ZH will not even report it as news,.... that's how conditioned you will all be to in seeing frogs boiled alive.


Smart Red-Necks are already putting their "HILLARY 2016 Bumper Sticker's on their F100's"

prains's picture

Smart Red-Necks are already putting their "HILLARY 2016 Bumper Sticker's on their F100's"


suck my balls chicom bot, at least do your research properly, it's F150


troll alert >>>>>>>>>>>>>>>>>>dip shit

satoshi911's picture

Fire - FIRE - LOOK over there ..

It seems that every fucking guru and/or expert is saying "LOOK OVER THERE",... when you see or hear an orchestra look for a conductor. Me thinks there is something at home they don't want you to see.


It's fairly clear that in ASIA markets are dropping cuz folks are getting out of the stock market, ... in the meantime the USA market goes up, cuz the FED just keeps buying more stock, ... I suspect this is to make it appear that the USA is as safe as fucking an HIV whore with a condom.


When I search the news the #1 story I see is not "CHINA IS FALLING", ... but here on ZH, they certainly want you to think so...

How is GROSS  doing for his customers? Anybody as big as him is sucking AIPAC cock and you know it. Why the fuck has he not retired to Tel-Aviv and enjoying his short life?



One last argument for DEAR LEADER GROSS, cuz it PISSES me off, the way folks got rich from 1950 to 1990, aka BUFFET-BITCH, and GROSS-BITCH. The way fortunes in the USA were made was to BUY companys rob the pension fund cash, and replace with IOU's. Rinse and repeat and today all pensions in private sector are gone.

Gross is a world class asshole and criminal, to attempt to tell morons that GREAT FORTUNES were made by INVESTING they were not, all great fortunes in the past 40 years were made by THEFT.


satoshi911's picture

About 10% of the CONTENT of the GROSS interview was on "CHINA", but ZH put CHINA on the post title enough said, ... its all what we call 'blogger fodder' to send commenters to their keyboard death,...



Goldman-Sachs/AIPAC has a hardon for CHINA, this we know,... Telling that GOLDMAN-SACHS sold all their interest last MAY in ICBC, ... then and only then did they go full retard to give it a bad name, but all the 'toxic' mystery meat in question here came from the Goldman-Sach NUT-SACK.

TheGoldMyth's picture

Steve Keen on private debt and Australia and BitCoin as an enduring platform"
"Published on Jan 22, 2014

"Steve Keen is a well-known economist who is considered one of the leading critics of mainstream economics' treatment of debt and money. He considers himself a post-Keynesian in that he adheres to John Maynard Keynes' idea that demand matters in the long as well as the short run. But his focus is debt , and specifically how Hyman Minsky's "financial instability hypothesis" is reflected in highly indebted economies.

Right now, Dr. Keen is working on an ambitious mathematical model of financial instability called simply, 'Minsky'.
Erin Ade spoke with Dr. Keen about debt generally and private debt specifically as well as the Australian economy.

Also, Erin Ade and Edward Harrison discuss how Bitcoin purchases at casino hotels will be processed through BitPay, a service that streamlines transactions using tablet and mobile interfaces. Could BitCoin itself crash and burn but the platform and application endure anyway?"

Spungo's picture

Bill Gross plays Fallout 3. Who knew?

Bruno de Landevoisin's picture

Note to the Federal Reserve:


Dear Janet;      February 4th, 2014


If I may be so forward, I felt compelled to pass on a quick note from a most concerned permanent resident of the United States of America.


Purposely degrading this Nation's hard earned reserve currency status, that was so honorably delivered to you by previous generations who built this great country from the ground up through their virtuous and industrious blood, sweat and tears, only to then implement a disgracefully lamentable monetary policy which deliberately steals from future unborn generations in order to facilitate living standards beyond our means, so as to maintain an unearned, undeserved and unprincipled culture of grotesque mass over-consumption, can only be characterized as a deplorable unconscionable abomination of Biblical proportion.......



Respectfully yours,


Le Baron Bruno Camille Soucanye de Landevoisn

chump666's picture

A really good point:

GROSS: Well not many. The way to get rich in the past was to borrow money and to lever hedge funds and levered corporate situations in terms of buyouts, et cetera, et cetera, or to buy the stock market in 2013, which itself is a levered type of investment. Corporations borrow 40 to 50 percent of their balance sheet. They lever up and you can buy equities in a levered type of situation. So leverage over the past 20 to 30 years, Stephanie, has really produced this total return, high return type of investment market that investors have grown used to. Pension funds think 7, 8, 9 percent is what they should expect, which means 4 percent from bonds and 12 percent from stocks. Not going to happen because basically we’ve been priced into the market. Assets are artificially priced. And from this point forward, double-digit returns, getting rich on leverage, no. You better look elsewhere for – for your profits

Leverage up and buy a sh*tload of lottery tickets, better chance?

Dubaibanker's picture

If China is so unimportant, then why is Bill Gross talking about it?

Why not talk about Eritrea or Seychelles or Benin instead? They are very important to the global economic conditions.......Gross must invest there, if he does not like or understand China.

basho's picture

did he say anything new? should find a ne barber.