BILL GROSS: The Fed Will Raise Rates This Year (JNS)
The new Bill Gross investment outlook is out and Gross thinks the Fed is raising rates this year.
Because this is a Bill Gross investment outlook, there is an extended metaphor comparing the classic board game Monopoly to the global economy. But the main point is that the Fed will raise rates, bond yields are "ridiculous," and since the financial crisis, the rules of the global economic game have changed.
So more or less, Gross is hammering on the same theme he's talked about in recent letters.
On his call for rate hikes, Gross writes:
Officials at the Federal Reserve – the most powerful and strongest of Parker Brothers – seem to now appreciate the hole that they have dug by allowing interest rates to go too low for too long. Despite reasonable growth, some of them recognize the system’s distortion if only because inflation is going down, not up, in the process. Other Parker Brothers countries face deflation in the midst of negative interest rates. But the Fed, uniquely in my opinion, will move up the Monopoly board’s interest rates in late 2015, hoping to avoid landing on the figurative Park Place and Boardwalk in the process. It won’t however, move quickly – capitalism has been damaged by the change in rules since 2008.
On the economy, Gross thinks things are breaking down on the margin, writing:
In the final analysis, while there is no better system than capitalism, it is incumbent upon it and its policymakers to promote a future condition which offers hope as opposed to despair. Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return. Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates
Gross' outlooks are usually colorful, with Gross last year calling himself a "philosophical nomad disguised in Western clothing."
Aside from Gross' sometimes opaque metaphors, Gross is still maintain a largely pessimistic outlook on the global economy.
Earlier this month, Gross wrote, "When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over."
In his latest outlook, Gross concludes that, "In the final analysis, an investor ... must be cognizant of future low and in some cases negative total returns in 2015 and beyond."
So, Monopoly or not, things are not looking up. At least not for Bill Gross.