Bond guru Bill Gross is wondering how investors will fare if the current economic recovery gets derailed.
"All of us, even the old guys like Buffett, Soros, Fuss, yeah -- me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch that an investor could experience," Gross, the founder and co-chief investment officer of Pimco, wrote in his monthly investor letter.
"What if a future epoch favors ... continual bouts of 2008 Lehmanesque volatility, or encompasses a period of global geopolitical confrontation with a quest for scarcer and scarcer resources such as oil, water or simply food?" asks Gross.
Throughout 2013, Gross's existential musings have taken a decidedly dark turn.
As far back as December, Gross was already outlining long-term challenges facing investors operating in the so-called New Normal, a phrase made famous by Pimco CEO Mohamed El-Erian in the wake of the financial crisis that is characterized by sluggish economic growth.
In his April letter, Gross, who runs Pimco's Total Return Fund (PTTRX), wonders whether the epoch of expanding credit that started in the early 1970s could be coming to an end.
He writes that the truly great investors will be those that can change course, or at least learn a few new tricks if "capitalistic expansion" slows or if "quantitative easing policies eventually collapse instead of elevate asset prices."
"Ah, now, that would be a test of greatness: the ability to adapt to a new epoch," Gross writes.
Gross' point and a perhaps a high pitched warning to investors: He's carefully watching for a sharp, potentially scary turn of events.
In keeping with his penchant for pop music themes, he makes this point using lyrics from Michael Jackson's Man in the Mirror. "If there's a different one coming though, to make our and your world a better place, we might need to look in the mirror and make a Chaaaaaaaange..."
Gross has used artists including Flavor Flav, the Beatles, the Dire Straits and Oasis to illustrate some of the dangers bubbling up in the financial system. The bond guru rarely mentions Internet stocks, but it's tempting to imagine a catchy Bill Gross-themed Pandora (P) station.
Gross ends his April missive promising to keep investors informed if he does see a shift. He says he'll keep looking in that mirror.
Get used to lower returns on stocks and bonds, Pimco's founder and co-chief investment officer Bill Gross told investors in his monthly letter.
Gross, who oversees Pimco's Total Return Fund (PTTRX), said that investors are entering a period of what he calls "rational temperance." By that Gross means that investors should expect gains from stocks, and corporate and high-yield bonds to be more muted.
Corporate credit and high yield bonds are somewhat MOREMaureen Farrell - Feb 27, 2013 11:54 AM ET
Bond guru and Pimco (PTTRX) managing director Bill Gross isn't buying into the bull market. In fact, he's warning investors to be afraid, be very afraid, of how inflation and the flood of cheap money will affect all investments.
Investors should be prepared to accept "lower returns on bonds, stocks, real estate and derivative strategies," Gross wrote in his monthly letter entitled "Credit Supernova!"
Championing something of a bunker mentality, Gross MOREMaureen Farrell - Jan 31, 2013 11:38 AM ET
Everything comes at a cost, including the Fed's low rate policy and multiple rounds of monetary easing.
Not one to pass up a good musical reference, noted bond guru and Pimco managing director Bill Gross' latest missive is aptly titled "Money for Nothin' Writing checks for free" in a nod to Dire Straits. In the past, Gross has cited The Beatles and Flavor Flav in pieces.
In his first investment outlook MORECatherine Tymkiw - Jan 3, 2013 1:46 PM ET
|Donald Trump mocks reporter's disability|
|Iran offers huge potential as final frontier economy|
|Turkey-Russia tensions: 4 reasons neither country can afford a trade war|
|Barclays fined record $109 million for hiding huge deal|
|Disney's cable channels lose millions of subscribers|