Famed bond investor Bill Gross on Monday warned that deflation remained a growing possibility despite aggressive monetary policies by central banks around the world.
In his second investment outlook letter since joining Janus Capital Group Inc., Gross said history showed that economies experience periods of inflation and deflation, and both "are the enemies of stability and growth."
"Prices change," Gross wrote in his November outlook, "and while they usually go up these days, sometimes they do not. We are at such a moment of uncertainty."
The roughly $7 trillion pumped into the financial system since the financial crisis by the world's three biggest central banks has succeeded mostly in lifting prices of securities rather than the cost of goods and workers' wages, he said.
"Prices go up, but not the right prices," Gross wrote.
Gross, who oversees the Janus Global Unconstrained Bond Fund, said Alibaba Group Holding Ltd. shares had soared from $68 to $92 in the first minute of their public debut, but other prices, including wages, "simply sit there for years on end.
"One economy (the financial one) thrives, while the other economy (the real one) withers," he said.
The U.S. Federal Reserve, Bank of Japan and European Central Bank all have taken extraordinary policy measures since the 2008 crisis to stabilize their economies and create a moderate amount of inflation. Results have largely been disappointing, with none of the three able to guide their preferred measures of inflation to their target levels of around 2 percent.
"They've made a damn fine attempt at it — have they not?" Gross wrote. "Four trillion dollars in the U.S., two trillion U.S. dollar equivalents in Japan, and a trillion U.S. dollars coming from the ECB's (Mario) Draghi in the eurozone.
"The trillions seem to seep through the sandy loam of investment and innovation straight into the cement mixer of the marketplace."
In September, price gains remained subdued across the U.S. economy, keeping the price index for personal-consumption expenditures, the Fed's preferred measure of inflation, below the 2 percent target for the 29th consecutive month. It rose 1.4 percent in September from a year earlier.
Persistently sluggish price gains can signal economic weakness. Gross pointed out that in the eurozone and Japan, concerns are already rising about the potential for deflation.
On Friday, the Bank of Japan expanded its already massive easing program for the first time in more than 1-1/2 years, reflecting its concern that recent weakness in the economy may endanger its efforts to overcome deflation.
In the United States, the Fed warned in its policy statement last week that "inflation in the near term will likely be held down by lower energy prices and other factors." Even so, it said that the chances of inflation "running persistently below" the 2 percent target had "diminished somewhat since early this year."
Gross said much of the United States' 21st-century economy had been based on financial engineering rather than investment and innovation.
"The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side — from the dreaded government side — where deficits are anathema and balanced budgets are increasingly in vogue," Gross said.
"Stopping the printing press sounds like a great solution to the depreciation of our purchasing power," he said, "but today's printing is simply something that the global finance-based economy cannot live without."
Gross left Pimco, the firm he co-founded, in September.
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