Is Bill Gross right?
The king of bonds has always been considered a point of reference for many asset managers. His last successful movement from Pimco to Janus Capital makes us think that he can hardly get it wrong when he looks at the long term. In his last letter to the clients he is pretty critical against the Central Banks. He seems to be sure that the monetary policies of the major central banks of the world, Fed, Bce, BoE and BoJ have not been successful on reaching the full employment and the growing of the prosperity of the middle class.
He supports the idea that is not possible to resolve a debt crisis adding more debt. In fact printing money according to Gross has only increased the risk of a new inflationary spiral like in the 70th years. The legendary investor believes that the Companies have only bought back their shares and haven’t invested enough in the creation of new jobs.
Mr. Bill for sure is not mistaken because among the money that have been printed have gone much to the richest class and less to the poorest. Also the investments have gone much to the markets and less in job creation. The U6 rate that better tells us about what is going on in the job market is still far from the pre-crisis level.
Inflation is not like alcohol, its effects are better seen later. Initially the people don’t perceive the effect of the excess money in the circulation but when the inflation process starts it is very hard to stop it that immediately and the social cost is very big. Central Banks have to react brutally to stop it and to restore the confidence in a low expected inflation on medium and long term.
So the concern of Bill Gross is legitimate, nevertheless we cannot deny that this kind of monetary policy was perhaps the only way to give another chance to the politicians to reform the way that financial markets function.