Repeating an argument he has made increasingly more forcefully over the past few years, former bond king, Bill Gross, now at Janus Henderson where he oversees the $2.1 billion Unconstrained Bond Fund, said late on Monday that financial markets are artificially compressed, in the process distorting capitalism because of the U.S. Federal Reserve's loose monetary policy.
"I think we have fake markets," Gross said at a Janus Henderson event quoted by Reuters.
He added that investors should brace for higher bond yields as the Fed begins to unwind its quantitative easing program but yields will edge up "only gradually."
Repeating observations made here, and elsewhere countless times, Gross said the Fed's loose monetary policy had resulted in investors chasing yield and thus producing tight corporate spreads everywhere around the globe (but especially in Europe where junk bonds now yield less than matched maturity US treasurys due to the monetization distortions of the ECB).
"Even China and South Korea - perfect examples of the risk trade - are at very narrow (corporate spread) levels. There is no real advantage in the global marketplace. Everything is so tight, it is hard to pick a winner from a group that is fake."
Gross also reiterated his previous warning that Fed Chair Janet Yellen and other global policy makers should not rely on historical models such as the Taylor Rule and the Phillips curve "in an era of extraordinary monetary policy."
Of course, if Gross doe put his money where his mouth is - so to speak - and acts in a fiduciary duty in line with his convictions, he should return capital to investors immediately and wait until such time as market are no longer "fake" and where investors such as Gross have an edge. Somehow we doubt this will happen, however, prompting the question whether one needs fake traders to navigate these fake markets...