Bill Gross - Fed Needs To Get Real Or Else: Financial Advisors' Daily Digest

by: SA Gil Weinreich


Bill Gross doesn’t like Fed dovishness, which is exactly what the Fed delivered yesterday.

Most of the market roars, while creative destruction hits the energy industry.

Does smart beta’s intelligence, or appearance thereof, result from cherry-picked data harvesting? Does the discovery of successful factors diminish the strategy’s future success.

Janus Capital fund manager Bill Gross is a little early with his monthly (April) newsletter, but it is well timed given Fed chair Janet Yellen's dovish policy declaration Tuesday.

It's not only that Yellen pledged to decelerate promised rate cuts, but she even discussed the possibility of a new round of QE through the renewed large-scale purchase of long-dated Treasuries and mortgaged-backed securities.

Gross, in contrast, thinks the Fed and other central banks must eventually normalize rates or banks and insurance companies will be unable to make money under their time-honored business models. In order for central banks to normalize monetary policy, they must first succeed at stimulating growth in a hurry - "or else," Gross says.

"To me, in the U.S. for instance, that means nominal GDP growth rates of 4-5% by 2017 - or else…Or else what? Or else…losses from negative rates result in capital losses, not capital gains."

In a sense, I agree with both of them, or neither of them, depending on how you look at it. Like Yellen, I don't think the U.S. economy post-Great Recession is robust enough to handle rate increases. Like Gross, I think our looking-glass monetary policy is merely robbing growth from our future and we will end up paying a price in long-term capital losses starting with the next financial crisis; but I don't think the U.S. economy today can produce 4-5% growth (I doubt Gross thinks it can either) for a variety of reasons, which seems to promise a most unwelcome "or else."

As to what all this means for investors now, I point to SA contributor DoctoRx, who argues for a cautious, capital preservation approach to investing.

Here are a few other items of interest to advisors today:

Creative destruction hits the energy industry.

How data mining and arbitrage impact smart beta.

Gallup survey: Most U.S. investors still want a human advising them.

But some quarter of Canadian adults wouldn't mind working for a robot.

SA founder David Jackson's blog cites study about negative effects--for your health and your company--of negative thoughts.