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Credit supernova to drive investors into hard assets in debt-free nations and precious metals says Bill Gross

Posted 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…

Rising risk

‘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.

Posted on 05 February 2013 Categories: Banking & Finance, Bond Markets, Gold & Silver, Investment Gurus, Sovereign Wealth Funds, US Dollar, US Stocks, Video Channel

2 Comments posted by readers:

Comment by John Mark - 05 February 2013

Mr Gross said, “The end is not nigh but….. ” Well, is he saying the end is nigh or it’s not nigh?

“The end is not nigh” but “appreciate the supernova characteristics of our current credit system”. Why should we do that? Because, he says, “it will change into something else”.

Is “our current credit system changing into something else” what he means by the end is nigh?

Yes and no! Both! On the one hand, “no” because he has insisted that “the end is not nigh”. On the other hand, “yes” because he tells us our current credit system WILL turn into something else.

He tells us in his newsletter that “our credit-based financial markets (and the economy they support) are…increasingly entropic”.

Is this highly intellectual man trying to tell us something without scaring the markets? I think he is! He tells us that our financial markets will “transition” into something else and that our current credit system WILL, at some point, transition into something else.

So, whilst we are distracted by “increasing entropy” and by “supernova and what they do or don’t do”, and whether we should look up all about them, he has taken us beyond that word “will” transition into something else.

And to distract us further, he uses an unusual verb “transition into”. Not change into or even morph into but transition into so that we are distracted by this supernova of a word, with the result that the inevitability of our current credit system becoming something else, something other than the credit system we know as a credit system, slips away from our minds into the ether.

So, is he really, in fact, after all, telling us that the “end IS nigh” right after he has declared that the “end is not nigh”.

Clever bloke this! Supernova die but we don’t all know that. Stars reflate into bright supernova but after the reflation, they change into something else which is similar to dying.

He is not going to go down in history as the top financial manager who stated that our current credit system is finished, ended, now, like a supernova collapses into nothingness. No! Because what will stick in our minds, indeed, even more than supernova, is “THE END IS NOT NIGH!”

But the end is nigh when you go on to examine the rest of what he has said. What did he say: “Our current credit system WILL transition into something else”.

If it’s something else, it is no longer our current credit system.

Comment by Joseph Matthews - 19 August 2015

I heard about an etf that invests in high end real estate, and only for cash. They buy nothing that is financed, so they are insulated from interest rates. A great deal of their property is high end property in NYC. Or so I was told. Anyone know the name of this fund?

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