Bill Gross runs PIMCO, the world’s largest government bond managers with assets of nearly $700bn. In a new commentary, he pulls no punches about what he sees as the ‘gluttony’ of the super-rich amongst the private equity and hedge fund elite. He also takes aim at the lenders who, in his view, have been ‘too meek and too passive’. He sees the end of the era of cheap debt financing, and with it the boom in M&A that has sustained equity markets in recent years.Bill Gross writes a very informative newsletter each month on the PIMCO website. This month’s issue pulls no punches, as he takes on the key issues of the role of private equity/hedge funds, and whether the US sub-prime mortgage crisis will affect the wider economy.

Gross’ view is that ‘wealth has always gravitated to those that take risk with other people’s money’. And he adds, in response to the debate about the low tax rates paid by many private equity people, that this is ‘especially so when taxes are low’. He takes aim particularly at Kenneth Griffin of the Citadel Group, who apparently claimed that if taxes rose ‘I would not be working this hard’. Gross terms this a ‘pretence’, given that Griffin took home over $1bn last year.

He also goes on to make a serious point about the emerging problems in the US sub-prime mortgage market. Many commentators and central bankers take the view that this is an isolated event, with no wider repercussions. Gross completely disagrees. And as someone who manages $700bn of funds, his view is worth considering.

His argument is that lenders have been too soft in recent years, and the sub-prime fiasco is the catalyst for change. Until recently, he argues, ‘lenders were giving away money!’ (his emphasis). Now, he says, the period of cheap financing has ended. In fact, he adds, the shock will be profound. ‘Rarely, if ever, have they (the Federal Reserve) raised yields by 150 basis points in a month and a half’s time as has occurred in the high yield market’.

He advises readers to watch closely what happens this week in the major debt financings due for Chrysler in the US and Boots in the UK, as his belief is that this will demonstrate that the ‘world has suddenly changed’. Gross is clearly calling a top on the era of ‘cheap financing’ that has driven so much M&A activity in chemical markets, as elsewhere.

And, of course, on a wider perspective, we all know that market sentiment swings between greed and fear. So if Gross’s call is right, and ‘greed’ has peaked, then ‘fear’ must be round the corner.

PREVIOUS POST

Oil prices and the euro

24/07/2007

The US dollar has been falling steadily in recent weeks. It is particularly weak...

Learn more
NEXT POST

Turning base quality loans into gold

31/07/2007

Alchemists once claimed the ability to turn base metal into gold. More recently,...

Learn more
More posts
The Fed’s stock market bubble is at risk as China bursts its real estate bubble
24/10/2021

The US stock market bubble just keeps rising. And every investor “knows” that the US Fed...

Read
EU patience starts to run out as UK threatens to break the N Ireland Protocol
17/10/2021

Unsurprisingly, it turns out that Brexit still isn’t “oven-ready”, despite the UK ...

Read
An end to the China bubble would risk a Minsky moment
05/10/2021

My letter in today’s Financial Times warning of the risk to Western financial markets from the bur...

Read
Xi aims to “bring order out of chaos” by bursting China’s property bubble
03/10/2021

China is at the start of its biggest economic shake-up since 1978, when Deng Xiaoping launched his p...

Read
The end of China’s real estate bubble will impact global supply chains, exports and growth
26/09/2021

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly....

Read
An Evergrande default could reset the Chinese, and global, economy
19/09/2021

China’s economy has been ‘subprime on steroids’ since the financial crisis in 2008...

Read
Housing markets face long-term downturn as central banks abandon stimulus
05/09/2021

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulu...

Read
Businesses set for transformation as supply chain chaos combines with Net Zero targets
15/08/2021

‘Business as usual’ seems a most unlikely outcome as we look forward over the next 6 months....

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more