THE MANAGER of the world’s largest bond fund, Bill Gross, has struck an apocalyptic tone in his latest letter to investors and described the market environment as “paranormal”.
Gross (pictured), who runs Pimco’s $244bn Total Return bond fund, said 2012 will be a year of “credit and zero-bound interest rate risk” with fewer incentives for lenders to extend credit.
“It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century.”
Gross said “paranormal” was a better description for the current economic environment than the phrase “New Normal”, coined several years ago by his chief co-investment officer Mohamed El-Erian to describe a world of low-growth and high unemployment. He argues that process will worsen this year.
Gross’s gloomy comments are likely to be seen as a partial mitigation of Pimco’s performance last year. In October he apologised to investors for a bad bet against US Treasuries. Gross’s fund saw redemptions of $5bn in 2011, one of the first times investors pulled money from the portfolio.
“We are left with zero-bound yields and creditors that trust no one and very few countries. The financial markets are slowly imploding – delevering – because there’s too much paper and too little trust,” he said.