
Bill Gross warns financial markets have become 'a Vegas casino' - endswapper
http://www.reuters.com/article/us-funds-janus-gross-idUSKCN12415V
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justinlardinois
> Gross, who oversees the $1.5 billion Janus Global Unconstrained Bond Fund,
> recommended Bitcoin and gold for investors who are looking for places to
> preserve capital.

Because wild Bitcoin fluctuations are somehow _less_ akin to gambling than the
securities market?

Glad he also threw in some "buy gold" scaremongering too.

Does Janus benefit somehow from this kind of talk?

~~~
duaneb
> Glad he also threw in some "buy gold" scaremongering too.

I'll bite; why is gold a bad investment? Does it not have low risk and stable
value? Hell, these days it even has REAL value as a special metal.

~~~
iambateman
Warren Buffett on gold [1]: "I will say this about gold. If you took all the
gold in the world, it would roughly make a cube 67 feet on a side…Now for that
same cube of gold, it would be worth at today's market prices about $7
trillion – that's probably about a third of the value of all the stocks in the
United States…For $7 trillion…you could have all the farmland in the United
States, you could have about seven Exxon Mobils (NYSE:XOM) and you could have
a trillion dollars of walking-around money…And if you offered me the choice of
looking at some 67 foot cube of gold and looking at it all day, and you know
me touching it and fondling it occasionally…Call me crazy, but I'll take the
farmland and the Exxon Mobils."

[1] [http://www.minyanville.com/trading-and-
investing/commodities...](http://www.minyanville.com/trading-and-
investing/commodities/articles/Warren-Buffett-brka-gold-investing-
investing/10/3/2012/id/44617#ixzz4MAd3l9GE)

Gold has no utility. This quote changed the way I think about gold when I
first heard it.

~~~
downandout
I don't often say this about Warren Buffett quotes, but that is one of the
most idiotic things I have ever heard anyone say. If you owned this 67 ft.
cube - all of the gold in the world - you would be able to extract any profit
you wanted from the vast majority of all electronics sold in the world, along
with a long list of other products. Your $7 trillion would turn
into...whatever you wanted it to. Buffett is showing his age and publicly
admitted lack of understanding of technology.

~~~
HillRat
I think you're taking this a bit too literally. Consider a less extreme case;
given a choice between a pound of gold or the current financial equivalent in
Berkshire Hathaway equity (about 150 shares), which is more likely to provide
higher returns over the long run? Buffet is basically making an optimistic
case for the American economy, arguing that gold is a hedge, while market
investment is a strategy.

~~~
downandout
Yes, I understood what he was _trying_ to say, but his comparison was too far
over the top and inaccurate to not be called out. His wording introduced and
failed to account for the idea of someone having a monopoly on gold.

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bluetwo
I think this is a result of the frustration Gross has with central banks
printing money. He is mad that it makes it difficult to make money in bonds,
but no one under 50 cares about this.

A side-effect is that it makes stock prices go up regardless of the underlying
value. This people care about so this is the message he keeps spreading.

Negative interest rates, which he is also concerned about, are insane. People
would be rioting in the streets if they really understood how this inflates
value for those who have money and inflates debt for those who owe.

~~~
skybrian
Don't you have that backwards? Low interest rates are good for debtors - they
pay less interest. Negative interest means you're being paid for borrowing.

~~~
bluetwo
Low interest rates are good (you could argue) but negative interest rates make
it harder to GET dollars to pay back your loans because the value of each
dollar is more.

Imagine if you borrow 200k for a house and when you sell it you can now only
get 150k, or if you take a new job and the market for your skills pays 20%
less than it used to.

Negative rates distort things in weird and unintuitive ways.

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danblick
Reminds me of "the ludic fallacy":

[https://en.m.wikipedia.org/wiki/Ludic_fallacy](https://en.m.wikipedia.org/wiki/Ludic_fallacy)

Which points out... Casinos are sometimes a bad model for randomness in the
real world. In a casino you have only "known unknowns", but in the real world
it's "unknown unknowns" that often cause problems.

~~~
pdkl95
From that wiki page:

> gravitating towards mathematical purity and failing to take various aspects
> into account

Mark Blyth puts a lot of blame specifically on the "seductive" quality of
mathematical models.

[https://www.youtube.com/watch?v=hmWbkPezgtU](https://www.youtube.com/watch?v=hmWbkPezgtU)

It may be beautiful math, but that doesn't mean it actually models anything
useful with any amount of accuracy and precision. Combine that with the social
inertia and status-quo-preserving reactions of the people who created or used
the bad models, and you get our current economic situation.

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tedunangst
Sooo, uh, do zero interest rates make life easier or harder for a bond trader?

~~~
lordnacho
Makes it harder, for sure.

I sat on a bond desk with a guy with over 20 years of experience. That
experience was mainly during the long period of falling yields that started in
the early 80s.

Opportunities would open up in the curves in various ways. The basis would
move, and there was a variety of opinions about what would move the market.

Now it's very much dependent on central bank behaviour, which is something not
many traders have an inside scoop on.

We've never been through a time when the interest rate on just about every
major currency is around zero.

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jnordwick
Remember, the Fed only targets the low end of the yield curve with any ability
(literally overnight lending), and sometimes it doesn't even do that well.
Just look at the spread between the the overnight rate and the target rate to
see how far off they are at times.

Anything past that down the curve is far more driven by economic forces and
inflation (which, yes the Fed does control/target however you want to word it,
but only really pathetically). Even the 30-day paper whips around far more
than the Fed has handles on.

Gross is just hurt because he's getting dragged across the coals lately. Never
take advice about markets not working / being irrational / etc. from somebody
underwater.

Corollary: never listen to how the markets are brilliant / doing the right
thing / blah blah from somebody holding a winning position either.

Find the guys who are getting taken to the cleaners and trying to understand
why and reevaluating their situations. You'll learn a hell of a lot more from
them.

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WallWextra
I bet PIMCO is really happy they kicked him out, now that he's promoting
Bitcoin.

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kaycebasques
Has anyone looked into his argument that zero percent interest rates destroy
business models that underpin our economy (I.e. insurance)?

~~~
mathattack
Low interest rates (at least with a yield curve) can help banks. Banks that
can borrow short term and pay near zero, and lend long term (say a mortgage)
with a higher rate can make money in this environment.

Insurance and Pensions are trickier, and it gets to the point of real
(inflation adjusted) versus nominal returns. If an insurance company needs to
invest against a real returns, than a 3% interest rate with 0% inflation is
the same as 7% with 4% inflation. This is how we should think of our 401Ks -
as long as we maintain purchasing power, the # of the rate doesn't matter.
(Rates rise when inflation rises and goes down when it shrinks) The flip side
is if insurance companies or pensions make nominal promises ("Give us 10% of
your income per year, and we'll invest it guaranteed at a 5% return") then it
becomes problematic. But in a low rate environment, people shouldn't be making
these kinds of promises.

The strange thing about this whole article is _why now_? Why are the financial
markets more of a casino than in 1999 or 2007?

~~~
forgetsusername
If banks make money off the interest rate spread, how does the absolute level
of rates matter (outside of misjudged future rising rates)?

~~~
TheSpiceIsLife
I think it goes something like this:

Low interest rates cause debt inflation. People can borrow increasingly more
as rates go down. As rates go down, the spread doesn't change, but the value
of the loans increases.

Maybe someone more knowledgeable can fix me up here.

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throwaway98237
"have become"...

Lmao here. Any cursory study into the history of financial markets will show
that they've always been "casinos".

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Hydraulix989
How hasn't that been the case unless you just invest in the index?

Is it just that much harder to "seek alpha" now?

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hmoghnie
Always been.

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ry4n413
gross is a living legend

~~~
throwaway98237
It's true, his "Investment Outlook" is one of my favorite things to listen
too.

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kelvin0
Well HFT is going to fix all that ... * cricket chirps _

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qwrusz
Financial markets have always been casinos.

I think what Bill means is that central banks have now taken a seat at the
casino's table.

If a whale sits down next to you at the casino and starts playing unorthodox
strategies and betting crazy and distracting the dealer - well some old folks
don't like that.

Side note: Read Bill's bio, he is a very good gambler, especially blackjack.

~~~
toomuchtodo
If you're playing against someone whose pockets have unlimited depth, why
would you play at the same table? How do you succeed when the rules can change
like the winds shifting?

That's what "old folks" don't like.

~~~
qwrusz
Why do people go to casinos? How does such a business even exist. People know
the odds are against them and go and play anyway.

