Gross went so far as to liken the global reliance on zero percent interest rates to using methadone to treat heroin addiction:
An investor must know that it is this money that now keeps the system functioning. Without it, even 0% policy rates are like methadone – cancelling the craving but not overcoming the addiction. The relevant point of all this for today’s financial markets? A 2.45%, 10-year U.S.Treasury rests at 2.45% because the ECB and BOJ are buying $150 billion a month of their own bonds and much of that money then flows from 10 basis points JGB’s and 45 basis point Bunds into 2.45% U.S. Treasuries.
He also called the massive $13 trillion on global central banks’ balance sheets “permanent,” noting they’ll never actually be able to bring those assets back to the market.
The result will be continued low rates for the foreseeable future, driven by continued quantitative easing (QE) abroad, said Gross, warning that eventually the bill will need to be paid in full.
“For now, investors must go with, indeed embrace this financial methadone QE fix. Quantitative easing will continue even though the dose may be reduced in future years. But while a methadone habit is far better than a heroin fix, it has created and will continue to create an unhealthy capitalistic equilibrium that one day must be reckoned with.”
The iShares Barclays Aggregate Bond Fund (NYSE:AGG) was trading at $108.14 per share on Monday morning, up $0.13 (+0.12%). Year-to-date, AGG has gained 0.07%, versus a 2.48% rise in the benchmark S&P 500 index during the same period.