During an interview on the FOX Business Network’s The Intelligence Report with Trish Regan, legendary bond investor Bill Gross pointed out the different facets of a lower interest rate environment.
“There are negative aspects to lower interest rates as opposed to positives,” Gross said. “The positives would be your mortgage is cheaper at a lower interest rate and you can buy a bigger house. The negatives basically are that savers, who have invested their deposits in banks for the last six or seven years at basically 0%, are getting short changed.”
He added: “That extends not only to individual savers but to insurance companies, pension funds and other institutions that need higher interest rates. So yes, the chickens are coming home to roost so to speak.”
Gross believes there is too much supply relative to demand in today’s global economy.
“It’s not just in oil, but in most commodities and related investment and producing them,” he said. “That supply has been fostered by years of 0% interest rates and quantitative easing. At the moment policy makers, which include central bankers, have no conceptual model to explain why 0% interest rates produce relatively little if any growth.”
As for homeowners and the U.S. consumer, the bond king said lower interest rates and low debt put them in a “relatively good position,” while adding his own advice for worried investors.
“You have to be safe and buy assets at a discount,” Gross said. “I like closed-end funds where you can buy assets at 85-90 cents on the dollar. Best example- BlackRock Build America [BBN]- semi-guaranteed by the United States of America. It yields about 7-8%... it’s been relatively secure and safe and I’d recommend that.”