Bill Gross: Death Is Inevitable for the Bull Market

It's time for asset managers to stop "conveniently forgetting" to reduce fees and position themselves for weak future returns, according to the bond king.

Bill Gross It’s just a matter of time until the death of the bull market, said former PIMCO chief Bill Gross, and investors must be rational and come to terms with its demise.

Comparing the death of this stage of the market cycle with his own mortality—having just celebrated his 71^st birthday in April—Gross said the unconventional monetary policies that boosted asset prices since the financial crisis are running out.

“Credit-based oxygen is running out,” he said in an investment outlook for Janus Capital. “We are approaching that point now as bond yields, credit spreads, and stock prices have brought financial wealth forward to the point of exhaustion.”

Gross, who currently manages Janus’ $1.5 billion global unconstrained bond fund, said he and other “gurus” like Stanley Druckenmiller, George Soros, Ray Dalio, and Jeremy Grantham are looking to predict the “future financial obituary.”

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The bond king also advised investors to beware of low asset returns—even “great unrest” caused by bubbles in the markets—and prepare for “a crush of perpetual bull market enthusiasm.”

As well as painting a grim picture, Gross said a rational and successful manager must get used to the idea of negative yields and lower fees going forward.

“The successful portfolio manager will be one that refocuses on the possibility of periodic negative annual returns and miniscule Sharpe ratios and who employs defensive choices that can be mildly levered to exceed cash returns,” he wrote.

In the outlook, Gross also criticized active asset managers “conveniently forgetting” to reduce fees over the last 35 years.

According to the bond guru, managers firmly believe that they deserve to be richer because of their skill or “their introduction of confusing and sometimes destructive quantitative technologies and derivatives” that gave way to the financial crisis.

“I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang,” Gross continued. “But if so, like death, only the timing is in doubt.”