US - PIMCO's co-CIO Bill Gross has hit out at US policymakers for introducing "devilish policy tools" to rebalance US debt, effectively "robbing savers".
Gross, who manages the world's largest bond fund, the $250bn PIMCO Total Return fund, also recommended investors "exorcise" gilts and treasury bonds from their portfolios and replace them with assets offering a better risk/reward ratio.
"To rebalance debt loads and re-equitise financial institutions that should have known better, central banks and policymakers are taking money from one class of asset holders and giving it to another.
"A low or negative real interest rate for an "extended period of time" is the most devilish of all policy tools. And the asset class holder that it affects, or better yet, ‘infects', is the small saver and institutions such as pension funds that hold long-term fixed income assets.
"It is anyone who holds bonds with coupons that cannot keep up with inflation or the depositor in a local bank who cumulatively holds trillions of dollars in time deposits that do not earn a real rate of interest," Gross said in his February investment outlook.
"This is the framework that has been created by modern-day policymakers who have innovated far beyond their biblical counterparts. To put it bluntly, they are robbing savers and taking money surreptitiously from longer-term asset holders who are incorrectly measuring future inflation."
Gross urges investors to recognise yield comes in different varieties, and suggests credit spreads, emerging market returns, or currencies with positive and high real interest rates are more attractive than ‘old-fashioned' gilts and treasury bonds offering 2%-3%.
"Those are markets that need to be ‘exorcised' from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint. It is still possible to produce 4%-5% returns from a conservatively positioned bond portfolio - you just have to do it with a different mix of global assets," he added.
Meanwhile Gross criticised the investment management industry as a whole, saying it has failed to achieve its main function in allocating capital effectively.
"I can say with confidence there are very few clients who have not benefitted from our investment management over the years. Some of the rest of this industry, however, I am not so sure of: rating agencies that perpetually fail at commonsensical quality judgments, bankers that make loans to subterranean credits and then extend the beggar's bowl for themselves, and 80% of active money managers that underperform the market.
"As a profession we have failed miserably at our primary function - the efficient and productive allocation of capital: The S&L debacle of the early 1980s, the Asian crisis, LTCM, dotcoms, subprimes, and Lehman are major sins of the modern era of money," he said.
"How can bond traders make ten, one hundred, one thousand times more money than an engineer or social worker given their dismal historical performance? Why is it that some of today's doctors are using food stamps while investment banking executives complain about millions of dollars in compensation that might be deferred in case of a future bailout?"
"Are record corporate profits a fair price for America's soul? A devil's bargain more than likely."
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