Pimco's Bill Gross: Beware of 'Monetary Red Bull'
The massive amounts of liquidity being pumped into markets by global central banks amount to "monetary Red Bull," and investors should fear what comes after the rush, bond investor Bill Gross told CNBC on Monday.
Pimco's famed portfolio manager—a vocal critic of the Federal Reserve's quantitative easing program that is injecting $85 billion a month into financial markets to jumpstart the U.S. economy—said that the Bank of Japan's own foray into massive bond buying was the equivalent of the popular energy drink, helping to grease the stock market's big rally.
"Financial markets are really feasting on an anticipated Japanese flavored 'Red Bull,'" Gross told "Squawk Box." He argued that low interest rates, surging credit and excessive liquidity were creating a "zombie element" to global economic activity.
"We don't necessarily endorse this Red Bull product, but we recognize its ability to energize financial markets," Gross added. "Monetary Red Bull can feel good for a while, it doesn't have many calories, but it does have some negative consequences down the road" on asset prices, he said.
He warned that zero interest rates would eventually be a drag on earnings growth, saying that cheap money led to relatively compressed margins, negative growth and layoffs.
Gross pointed out that ever since the demise of the Gold Standard — which explicitly linked the value of paper money in circulation to bullion — the total value of global credit markets has expanded exponentially, from about $3 trillion in the early 1970s to approximately $56 trillion today.
The sheer size of credit markets, combined with persistently low interest rates, raises the question of whether monetary policy is conducive to inflation-adjusted growth, he said.
"It's a fair question to ask whether that credit can keep on expanding at zero percent interest rates, and whether or not the magic elixir of real interest rates rates that we had in the 70s 80s 90s, and up until the last five years, will produce the results we've had in the past," he said.
The overhang of debt is also a lingering problem, Gross also said, with burgeoning public debt suffocating growth prospects in the developed world.
"Unless we ultimately de-lever...then the economy is in difficulty in terms of expanding," the bond investor said.
The bond guru is known for both his investment advice and soundbites peppered with dollops of popular culture. Last week, Gross drew attention for an investment outlook entitled "A Man in the Mirror", a philosophical examination of his investment savvy. The title was reminiscent of the chart-topping hit by the late King of Pop, Michael Jackson.