Sure, sunshine seems eternal to us. But billions of years from now, scientists predict it will burn itself out, consuming the Earth in the process.
Bill Gross realizes that today's global population of about 7.4 billion won't have to worry about that. But the Pimco co-founder whose investing prowess earned him the nickname of "Bond King" before he moved to Janus Capital in 2014, sees an analogy to finance-based capitalism in the solar system's fate, which gives him pause.
Global economic growth has been powered by credit, which has expanded 58-fold in the U.S. since the 1970s alone, Gross argued in his monthly investment outlook, posted Thursday.
But years of extremely low interest rates in the aftermath of the 2008 financial crisis have failed to return growth to previous levels, and central bankers' efforts to compensate by ramping up repurchases of government bonds and experimenting with so-called negative rates are turning credit into "something destructive," he said.
"Our global, credit-based economic system appears to be in the process of devolving from a production-oriented model to one that recycles finance for the benefit of financiers," he wrote. "Making money on money seems to be the system's flickering objective. Our global financed-based economy is becoming increasingly dormant, not because people don't want to work or technology isn't producing better things, but because finance itself is burning out like our future sun."
None of that, of course, is good news for banks. Not only have their stocks fallen sharply this year amid concern that plummeting oil prices will lead to loan defaults by energy companies whose revenue is dwindling, the shares remain significantly below pre-financial crisis levels, Gross said.
The KBW index of banking stocks is 45% lower than its level at the end of 2006 -- a period before the extent of problems in the U.S. housing market, which would eventually precipitate the crisis, became clear. Citigroup (C) finished last year at 91% below its 2006 close, while Bank of America (BAC) ended the year 68% lower.
Like others, Gross says oil loans, while worrisome to some investors, aren't the real problem. Energy loans as a whole are a fraction of the size of the $12 trillion mortgage market at play in the 2008 crisis. Rather, investors are recognizing the increasing difficulty banks have in making money amid tighter regulations and low rates that have sharply curbed interest income.