Credit supernova to drive investors into hard assets in debt-free nations and precious metals says Bill GrossPosted on 05 February 2013 with 2 comments from readers
Bond King Bill Gross of Pimco is telling investors to turn to gold and other commodities as well as hard assets in countries without huge central bank debt loads like Australia, Brazil, Canada and Mexico. It is a pretty clear message about the fragility of equities and bonds in current economic conditions.
In his February newsltter Mr. Gross says: ‘When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets… Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic…
‘Unless central banks and credit extending private banks can generate real or at second best, nominal growth with their trillions of dollars, euros, and yen, then the risk of credit market entropy will increase’.
Mr. Gross said the ‘end is not nigh’ but warned ‘appreciate the supernova characterization of our current credit system. At some point it will transition to something else.’
It’s the frustratingly low returns from massive global money printing around the world that concern the likes of Mr. Gross. There is too little return for all that investment. In effect the investor is just not earning enough from their investment and just borrowing more and more.
Why stock up on hard assets? The Bond King who manages the world’s largest bond fund worth $1.9 trillion ought to know. When paper money blows up it is the real stuff that you want to own. Money will devalue against real assets.
Time ladies and gentlemen?
The problem as always is putting a timescale on such a gloomy prediction which will not be unfamiliar to readers of this website and our sister investment newsletter (subscribe here). However, it is more important to be correctly allocated in advance than to get the precise timing right.
Mr. Gross is giving us yet another timely warning of the need to do this now and not to wait until everybody rushes for the exit. Then the price of real assets will soar and bonds and equities will tank together.
That’s a rare occurence just like a supernova and just as distructive to your wealth. ArabianMoney’s sister investment newsletter has plenty of ideas about how to actually make money out of this supernova (subscribe here). You do not need to see your wealth implode.