Bill Gross: We Need Bill Gross Now More Than Ever

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The way and the truth and the life.

It’s sometimes hard to see through the chipper anecdotes, but Bill Gross has had a pretty melancholy year. Sure, there was that whole getting fired thing last year—a year in which he also turned 70, which had him thinking about his own impending mortality a couple of months ago. But there’s more to it: There’s a growing sense that we’re doomed; that nothing in our current human institutions offers much hope for the future. This has Bill in a somewhat prayerful mood. He touched on entreaties to the Almighty last month in his ode to his bathroom, and mourned lost opportunities on the back seats of cars, as well. But he’s much more serious about prayer now. Because if someone doesn’t start listening to the great prophet Bill Gross, we’re all totally and completely f*cked.

It’s not that I’m a non-believer in prayer’s ultimate destination, but more of a cynical take on why the Lord would hand out party favors to everyone that asked, or to those that asked most intently….Draghi’s ECB and the Merkel controlled EZ ascribe to the old theory of “Feed a fever, starve a cold” – the “fever” in this case being financial bull markets fed with 0% credit, and the “cold” being fiscal austerity starved by balanced budgets. So far, the philosophy seems to be working well for Germany, miserably for Greece, and not so well for all other EZ countries in between...Historically, the Fed and almost all other central banks have comfortably relied on a model which assumes that lower and lower yields will stimulate not only asset prices but investment spending in the real economy. With financial assets, the logic is straightforward: higher bond prices and stock P/E’s almost axiomatically elevate markets, although the assumed trickle-down effect leading to higher real wages has not followed suit. In the real economy, it seemed almost straightforward as well: if a central bank could lower the cost of debt and equity closer and closer to zero, then inevitably the private sector would take the bait – investing in cheap plant + equipment, technology, innovation – you name it. “Money for nothing – get your clicks for free”, I suppose. But no. Not so….

The central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history. Low interest rates are not the cure – they are part of the problem. Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC’s Rick Santelli, can convince the establishment that their world has changed.

Say A Little Prayer [Janus]

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