Globally, the real economy has been displaced by a series of slow moving, secular headwinds that have hollowed out financial markets and created increasingly risky financial markets. That’s according to the latest investment outlook from Bill Gross, manager of the Janus Henderson Global Unconstrained Bond Fund. “All markets are increasingly at risk,” he writes.
Gross paints a picture of a series of secular headwinds “whose effects are difficult to observe in the short run – much like global warming.” He’s referring to new normal levels of high debt, aging demographics, deglobalization and the displacement of labour in favour of automation and technology. That has lead to flat-lining of productivity in the U.S. and throughout the developed world, where it’s increased by only 1% annually since 2000.
Rather than making money from a real economy built on solid economic foundations, Gross says investors are “steered toward making money in the financial economy – making money with money.”
Policymakers keeping rates at near zero and negative levels have exacerbated the problem – for investors, central banks have essentially replaced the “old-time religion of productivity growth as a driver of their strategy.”
So what should investors be doing in this making money with money world? Risk reduction is key and will ultimately outperform today’s winners, which have been generated by central banks. As he concludes: “It’s the real economy that counts and global real economic growth is and should continue to be below par.”