In the last few weeks, you have continued to hear and watch as global central banks like in the United States and Canada have started to do more than simply talk about raising interest rates, they have delivered on their threats to actually raise them. This has begun to raise concerns and reanimate the old specter of a negative feedback loop developing from higher interest rates and leading to larger (and likely unsustainable) interest payments on consumer, business, and even sovereign government debts.
One man who is legendary in the bond business has taken a stand to warn the world about what this central bank interest rate meddling with the financial system means for everyone in the near future. Bill Gross, the long-time bond king of PIMCO, sees a wrecking ball heading straight for the underpinnings of the so-called global economic recovery. Now would be the time to take heed of his warning and diversify yourself into gold. Gold offers insurance and protection during market turbulence like no other proven historical asset class can. It’s about time to learn how to invest in gold.
Bill Gross’ Warnings on Higher Interest Rate Repercussions Should Never Be Taken Lightly
Bill Gross is a veritable titan in the world of interest rates and their effects on budget balances for corporations and sovereign governments especially. The legendary long-time bond king from Pacific Investment Management Corporation co-founded and actively managed the world’s largest bond fund for literally decades afterward.
He maintained this revered position and status even after his extremely public argument and heated departure from the Newport Beach, California mega firm that he launched along with his long-time partner Mohammad El-Erian. Today, Gross handles the Janus Henderson Global Unconstrained Bond fund and its vast $2.1 billion in holdings.
Now Bill Gross is concerned that all of the so-far enacted and future looming increases in (globally important economies’) interest rates will severely damage the debt-saddled worldwide economy. He made this topic the subject of his recent closely followed monthly investors’ outlook.
Gross stated flatly that the actions of the systemically critical global central banks in finally tightening their interest rate fiscal policies will be hazardous at best for the still struggling to gain traction (and extremely fragile) economic recovery around the world. By boosting the rates to borrow now, this will simultaneously raise the costs for the individually and corporate-held short-term debt alike. You can see how low benchmark global rates remain today in this chart:
In support of his troubling thesis, Gross points to the enormous household and corporate debt levels within just the United States. Households possess an astonishing $14.9 trillion worth of debt at the same time as the American corporations and companies count $13.7 trillion in collective debts, per data maintained by the United States Federal Reserve. Gross does not even go into the government side of the equation, with his timely warning to you that:
“While governments and the U.S. Treasury can afford the additional expense, levered corporations and individuals in many cases cannot.”
His very real concern is that this will lead to inevitably collapsing bond prices as interest rise dramatically over the next few years.
U.S. Federal Reserve on Collision Course to Raise Interest Rates
Bill Gross is not simply looking for trouble where none exists either. The Federal Reserve under the leadership of Janet Yellen continues to boast about their ongoing path to raising interest rates gradually. In fact the global financial markets anticipate that it will hike them for a third time this year (before Christmas). At the same time, the other major global central banks have begun pulling back on their liquidity injection and bond buying programs which have been instrumental in flushing cash through their individual economies and banking systems.
A relatively lone voice crying out in the wilderness, the legendary Gross tirelessly maintains that it is the stubbornness of the central bankers and their blind devotion to their set in stone rules governing when they ought to tighten up their fiscal policy which has:
“distorted capitalism as we once knew it with unknown consequences lurking in the shadows of future years.”
As an example, the bond king is challenging the widely held theory that it requires higher short-term interest rates than longer-term ones (or what is known as an inverted yield curve per economists) to create an economic recession. Love him or ignore him, Gross has an interesting and salient point of view on the unpredictability of the monetary era in which the central banks of the world have led us all.
“The reliance on historical models in an era of extraordinary monetary policy should suggest caution. Logically (a concept seemingly foreign to central bank staffs) in a domestic and global economy that is increasingly higher and higher levered, the cost of short-term finance should not have to rise to the level of a 10 year Treasury note to produce recession.”
Gross Is Warning Investors Everywhere Against Both Stocks and Bonds
Instead of the traditionally popular assets of bonds and stocks (the former of which made Bill Gross’ reputation and fortune in the first place), the Janus fund manager is advocating real estate over the more traditional asset classes common to the portfolios of investors everywhere. He sticks to this recommendation despite the fact that the United States’ S&P 500 Index has increased by 10.5 percent so far year to date.
Gross is not pulling back from his concerns despite the ways that the stock markets have continued to impressively rally. He continues to sound the alarm almost alone among the respected investor-analyst voices as he sees only tighter central bank monetary policy lying in wait ahead for the foreseeable future. You would be well served to listen to this last word of warning from the erstwhile bond king:
“Today’s highly levered domestic and global economies which had feasted on the easy monetary policies of recent years can likely not stand anywhere close to the flat yield curves witnessed in prior decades. Central bankers and indeed investors should view additional tightening and ‘normalizing’ of short-term rates with caution.”
Rising Gold Prices Clearly Agree with Bill Gross’ Assessment
As all of this has been unfolding, gold prices are back up over the symbolically important level of $1,250 per ounce. You should consider this as one of your last opportunities to pick up the yellow metal retirement and investment portfolio safe haven hedge while it is still both relatively affordable and reasonably easy to obtain some physical supplies of bullion coins and/or bars.
Once personal, corporate, and even sovereign government finances and budgets begin to visibly and measurably unravel from the strain of the self-inflicted central bank wounds of higher interest rates, it will likely be too late to protect your stock- and bond-heavy portfolios. Now you know why you need a gold IRA.
Get your share of gold to protect your retirement portfolio today while you can still stomach the prices. After the markets have already started moving, obtaining some of the only 171,000 tons of gold ever unearthed (i.e capable of fitting within only a 20 meter cubed/67 feet cubed box) will become exceedingly difficult (especially as the world’s central banks have already locked away most of the readily available above-ground supplies of gold). It’s still not too late to learn what gold goes in an IRA.