Bill Gross warns financial markets have become 'a Vegas casino'

Furthermore, he is suggesting that we are nearing a tipping point when there is abundant competition for meager returns that should be temporary. The traditional roles and functions of the bond market in economies around the world have been perverted by policy.

At some point investors will exhaust the risk threshold in bond markets, and arguably, tap less traditional markets like Bitcoin simply because they are a counterpoint to the bond markets.

Maybe in terms of marketing itself as having sway in how to interpret things. Lets call it PR.

These kind of statements show a helplessness from old thought leaders. It shows that we can't continue to explain today's world by 1929 analogies. It smells like Black Swan.

But maybe the Black Swan is just that we at some point realize, that we were cargo culting for the next gloom and doom to happen.

Edit: if you downvote please have the sophistication and argue why.

I'll bite; why is gold a bad investment? Does it not have low risk and stable value? Hell, these days it even has REAL value as a special metal.

https://www.janus.com/insights/bill-gross-investment-outlook

How does he benefit ? The way to win on the stock market is sometimes and somewhat cynically referred to as OPM (other people's money). Bill Gross has managed to convince a few large clients to invest in bonds through him (their money - his decisions) and has made quite a bit of money because of a sustained streak of good decisions. How does he benefit ? By convincing more people to put their money in one of his funds.

A more balanced report of what he's talking about is possible. Right now he feels that it is a necessity for capital preservation to be well protected against a large downside (which would translate into a big surge in interest rates).

On the one hand "past performance is not an indicator of future performance", on the other hand, it would be foolish to ignore this voice.

People should realize what the cost of "stimulating the economy" has been : long-term low-risk investments have done extremely poorly for 10, even up to 15 years in some cases. High-risk investments have done well, but with several big "oops" moments that challenge capital preservation. Combined with this, regulation of pension and bank investments across the globe have emphasized capital preservation and forced these organisations to put significant investments in low-risk-and-now-extremely-low-yield investments. This currently means, if you're under 35-40, you effectively don't have a pension if you're not in the 0.1% (ie. you're not a director at least ? You don't have a pension). That age is going up, and it's not like it's doing any favors for people who are older. In other words: we've forced banks and pension funds to move away from "more risky" things, nonzero odds of failure for certainty of far-off failure. We have decided to have an almost-certain failure of our pension systems, so governments can spend more today "to save the economy". That save part is in quotes because while people were quite certain that was what they were doing 8 years ago, let's say that the enthousiasm for this viewpoint has gone below freezing in the past year or two.

A more cynical person might say that governments have decided that while they will constantly loan money, they will no longer pay interest. Bill Gross' critique is that this is the feedback mechanism that balances governments spending against private sector growth spending (because the government is a negative for the economy. It's a necessity, roads, healthcare, etc, but a negative. If the public sector grows "too much", as history has proven time and time again, a total crash follows).

Assuming there's no total crash (because you don't prepare for that. If that happens, it's over and what you did or did not do doesn't matter. So you prepare for the other options), what people are predicting will happen, given the models of 1972, 2001, 2008 and even before 1929 and the like is that a sudden massive inflation spike will occur coupled with a fall in asset prices (like houses and ...), and especially a fall in stock prices.

[1] https://news.ycombinator.com/item?id=11217860

"At some point investors — leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives. Bitcoin and privately agreed upon block chain technologies amongst a small set of global banks, are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms. Gold would be another example — historic relic that it is. In any case, the current system is beginning to be challenged"

If Congress won't use policy to push wages up, thereby stoking consumer demand, we will be condemned to stagflation and never ending asset froth/bubble/pop cycles.

The Fed has run out of tools in their belt. If it took pushing benchmark rates close to zero to get the US economy humming again, and we're still close enough to zero to call it zero, what happens if another economic slowdown occurs?

> gravitating towards mathematical purity and failing to take various aspects into account

Mark Blyth puts a lot of blame specifically on the "seductive" quality of mathematical models.

https://www.youtube.com/watch?v=hmWbkPezgtU

It may be beautiful math, but that doesn't mean it actually models anything useful with any amount of accuracy and precision. Combine that with the social inertia and status-quo-preserving reactions of the people who created or used the bad models, and you get our current economic situation.

I sat on a bond desk with a guy with over 20 years of experience. That experience was mainly during the long period of falling yields that started in the early 80s.

Opportunities would open up in the curves in various ways. The basis would move, and there was a variety of opinions about what would move the market.

Now it's very much dependent on central bank behaviour, which is something not many traders have an inside scoop on.

We've never been through a time when the interest rate on just about every major currency is around zero.

Insurance and Pensions are trickier, and it gets to the point of real (inflation adjusted) versus nominal returns. If an insurance company needs to invest against a real returns, than a 3% interest rate with 0% inflation is the same as 7% with 4% inflation. This is how we should think of our 401Ks - as long as we maintain purchasing power, the # of the rate doesn't matter. (Rates rise when inflation rises and goes down when it shrinks) The flip side is if insurance companies or pensions make nominal promises ("Give us 10% of your income per year, and we'll invest it guaranteed at a 5% return") then it becomes problematic. But in a low rate environment, people shouldn't be making these kinds of promises.

The strange thing about this whole article is why now? Why are the financial markets more of a casino than in 1999 or 2007?

Like many things in economics, data to study this is limited and noisy and just sucks. Lot of assumptions needed in the models and there is no historical precedent to bounce on.

TL;DR There is no consensus whether zero percent interest rates will turn out to be overall good, bad or neutral for the economy. To the extent there may be winners and losers, even details of that are still unclear. Any other answers right now are just speculating opinions.

My opinion at this point: I agree that ZIRP/NIRP do not work under the current business models that underpin our entire economy! (try it for yourself put a zero in a denominator of a fraction)... But I disagree this necessarily destroys the business models, maybe it does turn out very bad or maybe business models just change/fix the error as they were written poorly to begin with and things will be OK. Who knows.