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: