Legendary 'Bond King' Bill Gross appears to have moved on from his years-long feud with his neighbor and has a warning for investors living in a "dreamland" or oasis thanks to global central banks' decision to pump trillions of dollars into world markets, resulting in a "dangerous" situation for overvalued financial assets.
Gross spoke with FT about ultra-low interest rates and central bank bond-buying programs that have spurred euphoria in stocks, bonds, crypto, real estate, and anything else under the sun.
"It's dangerous," Gross warned of loose monetary policy. "It's all dreamland that's been supported by interest rates that aren't where they should be."
Gross's comments are similar to Allianz Chief Economic Advisor Mohamed El-Erian, who warned Monday that the Federal Reserve is losing credibility over its transitory narrative after the US inflation rate accelerated to a three-decade high of 6.2% in October, which means the bank will need to act sooner than later.
Also, on Monday, Christian Sewing, Deutsche Bank's chief executive, said central banks would need to tighten monetary policy quicker as a countermeasure against soaring inflation.
Gross then questioned whether the Fed could tighten monetary policy due to all the financial excesses because such a decline in bond-buying purchases and interest rate hikes could create unwanted volatility across asset prices. He said such a move by the bank could cause market damages.
"They can't do much," he said. "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 may be gradually raising interest rates."
Gross is retired and was once the bond market's most influential investor. He now manages his own money and is haunted by the long-term effects of prior decade's monetary experiment with interest rates at a zero lower bound and or even negative and the mammoth bond-buying that totals $23 million since 2008.
He ended the interview by saying all of this monetary experimentation will eventually backfire:
"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."
Gross' latest warning comes a little more than a month after he published an investment outlook, titled "You Only Hang Twice," where he warned about inflation and Treasury yields moving higher.