Bill Gross: Investors Are Making Money This Way – Market Realist

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Why Bill Gross Is Concerned about the Global Markets PART 2 OF 3

By Sarah Sands  | Jun 20, 2017 10:50 am EDT

Bill Gross on how to make money

Bill Gross said in his June investment outlook that making money in the present economic environment is different than making money a decade ago. He compared two situations: making money in the financial economy and making money in the real economy.

Investment in the real economy means investing in plants, machinery, capacity extensions, and human productivity development. Investing in the financial economy means investing in bonds, CDs (certificates of deposit), FDs (fixed deposits) (BND), and stocks (SPY).

Productivity is one of the important factors behind economic (QQQ) growth. Falling productivity in the United States (IVV) (IWM) is a major concern for investors. As a result, investors are investing money in the financial economy instead of the real economy.

Central bank’s role in the financial system

The financial economy has been driven mainly by the Fed’s persistent lower interest rate and quantitative easing. Most of the central banks around the world are following the same path. These processes artificially inflate asset prices. Gross said these things increase risks in the financial system, but investors are moving in that direction.

Gross said, “Savers/investors make money with their money (cash) as long as economies grow and inflation stays reasonably conservative. There is nothing new in all of this, but it helps to outline the fundamental process to understand why today’s economy is so different from that of decades ago and why it induces risks that were not present before.”

In the next part of this series, we’ll analyze Gross’s view on yield.