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Bill Gross: What if the good times end?

April 3, 2013: 11:23 AM ET

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.

Related: Bill Gross: Be very afraid of the markets

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.

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