Bill Gross says capitalism, like the Sun, is dying — except it will take less than 5 billion years to blow up (JNS)
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Bill Gross is at it again.
In his latest investment outlook, Bill Gross writes about how the sun will eventually swallow the Earth whole instead of nurture life.
Which, it seems, is sort like what has happened to capitalism, just at a faster rate. First helpful, then harmful.
Here's Gross (emphasis ours):
Our Sun – a rather tiny star in the galaxial scheme of things – seems inexhaustible. But 5 billion years from now, it will swallow, instead of nurture the Earth as it burns itself out – first contracting, then expanding like a flaming candle turned firecracker. Not to worry though. We won’t be around. It’s not that we are beyond worrying; it’s that our lives are much shorter and we needn’t think much about it... Capitalistic initiative married to an ever expanding supply of available credit has facilitated economic prosperity much like the Sun has been the supply center for energy/ food and life’s sustenance. But now with quantitative easing and negative interest rates, the concept of nurturing credit seems to have morphed into something destructive as opposed to growth enhancing. Our global, credit based economic system appears to be in the process of devolving from a production oriented model to one which recycles finance for the benefit of financiers. Making money on money seems to be the system’s flickering objective. Our global financed-based economy is becoming increasingly dormant, not because people don’t want to work or technology isn’t producing better things, but because finance itself is burning out like our future Sun.
Always uplifting reading from Gross.
But so the broader argument is that our economy has expanded only on credit — or borrowed money — over the last 50 years or so and the capacity for additional borrowing seems to be drying up.
In other words, the economy is exhausted.
As for what investors should do, Gross thinks the key is keeping durations short and, in order to amplify returns, borrow money to get there.
Gross again:
The advice about borrowing at low yields above obviously has to be matched with investments that are less volatile and least affected by the evolving changes of our monetary system. But it can be done. Closed end funds at deep discounts, highly certain acquisition arbitrage stocks, as well as volatility sales at tails are general examples.
The Sun still comes up every morning but at different times according to the season. Summer, for our credit based financial system, is past and a shorter winter-like solstice is in our future. Be prepared for change.