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Why Gross Is More Worried about the Return of Money than the Return on Money

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Bill Gross’s March 2017 investment outlook

“I’m not so much concerned about the return on my money,” Janus Capital’s Bill Gross wrote in his March 2017 investment outlook, “but the return of my money.” The first lesson, the billionaire investor added, is “don’t lose it.”

Bill Gross is a big critic of the central bank’s prolonged lower interest rate, believing that the growing credit system or the leveraged based financial system is a major problem for the economy (QQQ) (SPY). According to Gross, the increasing credit in the economy is a major danger sign (VFINX) (VOO) (IVV), because the leveraged based financial system has artificially boosted various asset prices. This is creating a bubble in various asset prices.

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Return of money versus return on money

In Gross’s distinction, the return of money refers to the return that investors’ are getting on their investments, while the return on money refers to what the financial system is earning by lending investors money. The money created by the financial system in the economy shows that it is going to be dangerous for investors to get a return of their money.

Gross stated that he likes to point out that “it still mystifies [him] how a banking system can create money out of thin air, but it does.” Gross added that “by rough estimates, banks and their shadows have turned $3 trillion of ‘base’ credit into $65 trillion or more of ‘unreserved’ credit in the United States alone—Treasuries, munis, bank loans, mortgages, and stocks too, although equities are not officially ‘credit’ they are still dependent on the cash flow that supports the system.”

Continue to the next part of this series for an analysis of Gross’s view on the US (QQQ) (SPY) credit system.

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