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Former Bond King Bill Gross commented Tuesday again on 'fake markets' saying the boost from negative interest rate yields may have reached an end, warning that lower rates won't boost stock markets further when he released his first investment outlook, “The Fixx”, since retiring from Janus Henderson this year.

Bill GrossA sharp looking Bill Gross Back in His Heyday

Mr. Gross activated his new website, https://williamhgross.com, where investors can view an archive of some of his favorite investment outlooks written over the past 40 years, as well as learn more about the $390 million-asset William, Jeff and Jennifer Gross Foundation’s philanthropic activities.

Bill Gross has long retired from PIMCO and Janus Henderson but has moved on to commentary on his own website.His latest article touches on fake markets.

In his investment outlook entitled “The Fixx”, Mr. Gross writes that “asset markets have benefited tremendously and have been ‘Saved by Zero’ as the rock group ‘The Fixx’ rather ironically sang way back in 1983.”

He estimates conservatively that stock prices in 2019 alone have risen by 15% or so, solely because real 10-year Treasury rates have declined by 80 basis points in the past nine months. He cautions investors to “prepare for slow economic growth globally and an end to double-digit market price gains of months and years past.”

“How lowc an you go?”has been investment markets’clarion call of global central banks for nearly a decade now and in the process, financial markets prior commonsensically interest rate boundary of zero has been breached by the BOJ, ECB and $17 trillion of global bonds. Is this a healthy situation and how long can markets (and economies) breathe in an oxygen-less interest rate environment?

Read: Bond King Bill Gross Thinks We Have Fake Markets

It is obvious to me that asset markets have benefited tremendously and have been “Saved by Zero” as the rock group “The Fixx”rather ironically sang way back in 1983.Whether an observer argues from the abilityof cost-free-carry to lever riskier assets, or from the academic simplicity of the Gordon dividend discount model, which effectively is governed by real interest rates, the surge in stock prices and the narrowing of credit spreadshave been materially affected by approaching and then piercing the zero band of global yields.

In his archived outlooks, which provide a chronicle of financial markets Mr. Gross says: “These outlooks represent life as I saw it, and in many cases, lived it. The monthly preambles about living were what I enjoyed writing the most and were almost always laborious painful inquisitions into our daily lives and in some cases the meaning of life itself.”

Mr. Gross adds: “My best ones, in my opinion, were mentally framed during quiet moments in a shower or after a hard workout at the gym when endorphins open the brain to subconscious thoughts and feelings. They are as much as an autobiography as I could have written, but framed in a monthly series of essays, compiled over four decades that show a maturation or perhaps a molting of my life’s philosophy. They represent who I was, who I am and who I expect to become. I hope that in certain ways, they connect with your own experience.”

His argument is that the the past 15% rise in US equity markets is 'solely' because of central bank easing and that 25% of the rise since 2009 is because of cheap money. He asks can bull market equities be sustained even with additional easing on the part of Central Banks?

Probably not, because Governors and Chairs of these presumably prescient institutions are becoming wise to the negative effects of rates at zero (or less)that literally rob small savers and larger financial institutionssuch as banks, insurance companies and pension funds of their ability to earn historically "guaranteed" carry that equate assetswith liabilities and prevents them from earning an assumed return that avoids haircuts and even bankruptcy.

Gross writes that in the absence of substantial fiscal stimulation, the economic and asset boom may have reached an end. He argues for owning high yielding, secure-dividend stocks.

Source: William H Gross

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