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.
In the U.S., the Federal Reserve cut rates to nearly zero to bolster the economy in 2008, then held them there for seven years, curbing banks' net interest margin, the difference between the rates they pay to depositors and what they charge to borrowers.
A 25 basis-point hike in December prompted a spurt of optimism for bank investors. Since then, however, a combination of global market volatility, a slowing Chinese economy and further declines in oil prices have prompted speculation among traders that the central bank -- rather than raising rates as much as 100 basis points this year, as signaled -- won't increase them at all.
"The recent collapse in worldwide bank stock prices can be explained not so much by potential defaults in the energy/commodity complex, as by investor recognition that banks are now not only being more tightly regulated, but that future returns on equity will be much akin to a utility stock," Gross wrote.
He isn't alone in that assessment.
"The very real concern about all the banks, but particularly the large ones, is 'Can they actually make decent returns for the shareholders and if they can't, why do I want to own these things,'" Fred Cannon, head of research at New York-based Keefe, Bruyette and Woods, said in an interview.
JPMorgan Chase (JPM) , however, isn't relying on rate increases this year to meet its projection of $2 billion in interest-income growth, CFO Marianne Lake said during the New York bank's yearly investor summit.
And CEO Jamie Dimon remained optimistic about the consumer-driven U.S. economy, with shoppers spending some of the cash they're saving at the pump because of lower oil prices.
"The U.S. consumer is a huge winner," he noted. "We're actually seeing them buying stuff, unlike what you've heard elsewhere."