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Bill Gross: one mistake could set off 'credit implosion'

Bill Gross: one mistake could set off 'credit implosion'

The recent optimism around the Trump bull market has done nothing but add to veteran bond manager Bill Gross's concerns about the market.

In his most recent , Gross told investors that in the present climate they would be better off preserving capital than fixating on high returns. 

His concerns are pegged on worries over high levels of debt across the world, adding that the present financial system is like a 'truckload of nitro glycerin on a bumpy road.'

Gross noted that the world economy has generated more debt relative to gross domestic product than it did ahead of the 2008 financial crisis.

Credit across the US economy of $65 trillion equates to 350% GDP, while China’s leverage ratio has doubled over the past decade to nearly 300%, he said. 

Central banks are attempting to walk a fine line, said Gross, by generating mild credit growth that matches nominal GDP growth as well as keeping the cost of credit at a yield that is 'just right.'

'Janet Yellen is a modern day Goldilocks. How is she doing? So far, so good, I suppose,' he added.

However, while the Fed is suggesting happier days ahead, Gross does not believe it will take much to set off a crisis.

'One mistake can set off a credit implosion where holders of stocks, high yield bonds, and yes, subprime mortgages all rush to the bank to claim its one and only dollar in the vault,' he added.

'Don't be allured by the Trump mirage of 3-4% growth and the magical benefits of tax cuts and deregulation. The US and indeed the global economy is walking a fine line due to increasing leverage and the potential for too high (or too low) interest rates to wreak havoc on an increasingly stressed financial system.

'Be more concerned about the return of your money than the return on your money in 2017 and beyond.'

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