Investment Outlook from Bill Gross
Through the years I’ve accumulated a short list of quotes that express a personal view of what makes people happy. You, I’m sure, have your own candidates, but most of them probably resemble some of the ones listed above: Stay busy doing something you enjoy; be mindful of other people and the world in, around, and above you; don’t let your reach exceed your grasp; find someone to share your happiness with. My favorite of all of these is the one above by Donovan – that somewhat kooky “love generation” folk singer of the late 1960s. “Happiness runs in a circular motion…happiness runs, happiness runs.” There may be more to this refrain, however, than appears at first glance, the entirety of which I’ve tried to encapsulate artistically in my open-ended smiley face that wasn’t ever-popular when Donovan crooned the tune. For years I thought that the gist of Donovan’s phrase was the obvious – the “pay it forward” allusion that suggests what goes around, comes around – and it undoubtedly is. But there are hidden nuances, at least to me. The “running in a circular motion” also connotes a self-contained, inward-looking, self-satisfaction that equates happiness to being content with yourself as a person. And the last phrase – “happiness runs, happiness runs” may speak to the Buddhist philosophy of impermanence and the priority of the moment. Donovan might not rank up there with Kant and Spinoza, but his little song packs a powerful message. Rock on, flower child, wherever you are.
And while happiness may run in a circular motion, it seems history may too – or at least it may rhyme, as Mark Twain once said. Pictured below are two of my notes written not recently, but in 2003. They are as relevant today as they were then. “Financial repression” runs… in a circular motion, it seems. In 2003, though, central bankers had rarely contemplated the monetary policy instruments that could lower and then artificially cap interest rates. Although my notes correctly allude to “all means including ‘ceilings’ ” to keep the cost of financing low, the expansion of central bank balance sheets from perhaps $2 trillion in 2003 to a now gargantuan $12 trillion at the end of 2016 is remarkable. Not only did central banks buy $10 trillion of bonds, but they lowered policy rates to near 0% and in some cases, negative yields. All of this took place to save our “finance-based economy” and to raise asset prices upon which that model depends. As any investor would admit, these now ongoing policy panaceas have done just that – promoted higher asset prices and engendered a modicum of real growth. In the process however, as I have frequently written, capitalism has been distorted: savings/investment has been discouraged by yields/returns too low to replicate historic productivity gains; zombie corporations have been kept alive in contrast to Schumpeter’s “creative destruction”; debt has continued to rise relative to GDP; the financial system has not been cleansed and restored to a balance where risk and reward are on a level plane; disequilibrium has replaced equilibrium, although it is difficult to recognize this economic phantom as long as volatility is contained.