Investing legend Bill Gross says the Fed risks sinking the dollar if it persists with its ultra-easy policies

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Bill Gross.

  • The world’s reserve currency could sink under the Fed’s current policies, Bill Gross said in the FT.
  • He disputed Jerome Powell’s decision to keep interest rates low until the pandemic is under control.
  • Inflation will force the Fed to move away from its ultra-easy policies sooner than expected, he said.
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Billionaire investor Bill Gross wrote in a Financial Times op-ed on Tuesday that the Federal Reserve could risk sinking the dollar if it continues to support accommodative monetary policies for too long.

“I suspect that $5 trillion spending programmes and the Fed’s current package of near zero per cent short-term rates and $120 billio n of monthly bond buying will move growth, inflation and financial markets far beyond reasonable targets that ultimately will jeopardize post-Covid-19 normals,” he wrote.

Gross, who has since retired since co-founding investment firm Pimco and moving Janus Henderson Investors, argued the threat of inflation will force the US central bank to change tack and move away from its policies sooner than it expects.

“The Fed cannot for long continue to maintain current policy rates and expand its own balance sheet and therefore private bank reserves at a $120 billion monthly pace,” he said.

Enormous amounts of money, as a result of quantitative easing, pumped into the economy over the past year to help sustain the fallout from COVID-19 led to an increase in the amount of cash in circulation. This circumstance inevitably leads to inflation and decreases the value of the currency, thereby devaluing investor savings.

Gross called out Fed Chairman Jerome Powell for transitioning from a more conservative stance to one that has “unleashed the potential for chaotic future economic and market outcomes.”

The one-time “bond king” disputed Powell’s decision to keep interest rates low until the pandemic is more controlled and employment returns to normal. Unemployment may never return to 4% given the revolutionary changes in the work-from-home environment, in Gross’ view.

“And how long can the Treasury continue to require near-costless Fed financing for $2 trillion, $3 trillion and $4 trillion deficits without sinking the dollar? In a historical gold-standard world, Fort Knox would have been emptied long ago, implying the bankruptcy of the world’s reserve currency,” he said.

Gross also suggested that several cryptocurrencies and the boom in special-purpose acquisition companies have been a result of having an accommodative Fed.

“Cash has been trash for years, but soon it may be the only haven for investors sated beyond reasonable expectations of perpetually low yields and supportive bond kings and queens,” he said.

Read More: A senior crypto trader at a $500 million digital asset manager shares his favorite trading strategies to generate ‘riskless profits’ – and the 3 sectors of the nascent market that he is most bullish on

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Gold prices are at a 3-month high relative to bitcoin as the Fed continues monetary-stimulus efforts

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  • Spot gold rose to $1,853.12 an ounce on Monday, the highest point since February 10.
  • Gold’s price relative to bitcoin is now at a three-month high as the cryptocurrency sells off.
  • Investors are flocking to gold amid fears of rising inflation and a weakening dollar from the Fed’s stimulus efforts.
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Gold prices rose to a three-month high Monday morning as investors have flocked to the safe-haven asset amid continued Federal Reserve stimulus that’s weakened the dollar.

Spot gold rose 0.5% to $1,853.12 an ounce on Monday, reaching the highest point since February 10, according to Bloomberg. The price movement came as bitcoin sank to nearly $42,000 after Elon Musk suggested Tesla may sell its holdings.

The ratio of gold’s price relative to bitcoin is up to the highest point since early February. One Bitcoin is now equivalent to about 23 ounces of gold bullion, down from a record of 36 ounces in April, according to Bloomberg data.

It’s likely that many investors may be buying gold as an alternative to a weakening dollar. The Federal Reserve has promised to keep interest rates near zero for the foreseeable future, which could weaken the US currency and strengthen the case for gold.

Gold has also been historically viewed as a hedge against inflation, and Wall Street has grown increasingly concerned that inflation will overheat as the US emerges out of the pandemic.

Cryptocurrency bulls argue that bitcoin’s fixed supply makes it an even better hedge against inflation than Gold, but recent price movements in both assets question this narrative.

Last week, when key inflation data came in significantly higher than expected, bitcoin fell 7% in one day, moving in the exact opposite direction as one would expect an inflation hedge to move. Bitcoin experts say they’re not concerned about day-to-day movements in the historically volatile cryptocurrency’s price.

Read more: UBS says to buy these 42 ‘new momentum’ stocks that are poised to outperform in a rising inflation environment

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China’s digital currency will be distributed using a two-tiered system to help get it into consumers’ hands

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Chinese digital currency.

  • China has become the first major economy to roll out a digital currency.
  • The e-yuan will bypass the global financial system.
  • Economists, however, warn it could endanger the US dollar long-term.
  • See more stories on Insider’s business page.

The People’s Republic of China (PBOC) introduced its first blockchain-powered digital currency controlled by its central bank, The Wall Street Journal first reported. The project took seven years to complete since work began in 2014.

The e-yuan is a government-sponsored virtual currency designed to trace all movements of money. For example, the state will know full details about what someone purchased and where, FXStreet reported.

It is money that isn’t associated with the global financial system, where the US dollar has dominated since World War II. Its main aim is to gain more centralized control and replace some of the cash and coins in circulation, CNBC reported. It is also a faster and cheaper way to make domestic and international transactions.

Up to 750,000 people have been chosen by a lottery system, allowing them to spend their digital yuan in both offline and online stores using an app, per the Journal. Food and drink giants including Starbucks and McDonald’s reportedly moved quickly to accept the new currency.

China is the second country and first major economy to roll out a digital currency. The first country was the Bahamas Central Bank, according to Bloomberg.

Distribution of the digital yuan will involve a two-tiered system. It will be dispensed to commercial banks who will then be responsible for getting the currency into consumers’ hands, CNBC reports.

PBOC also suggested the two-tier structure can “avert disintermediation in the financial sector” because the central bank will not be in competition with the commercial banks, per CNBC.

The virtual currency is held in cyberspace. It is available on a card, or an individuals’ mobile phone screen with a picture of Mao Zedong, mirroring the paper money. Spending doesn’t require an internet connection.

Support for the digital yuan is not unanimous as some think it could potentially threaten the future of the US dollar, MarketWatch suggested.

John Lipsky, a former International Monetary Fund staffer, told The Wall Street Journal: “Anything that threatens the dollar is a national-security issue. This threatens the dollar over the long term,” in a feature that described the virtual yuan as “a re-imagination of money that could shake a pillar of American power.”

Does this mean there is a digital dollar on the way?

Jerome Powell, the federal reserve chairman, thinks so, telling Congress that it is looking carefully at issuing one. It is now a “high-priority project for us,” he said.

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Billionaire tech investor Peter Thiel warns bitcoin might serve as a Chinese financial weapon against the US – and says it threatens the dollar

Peter Thiel
Peter Thiel.


Peter Thiel, one of Silicon Valley’s most prominent venture capitalists, suggested bitcoin could pose a threat to the US during a virtual seminar held by the Richard Nixon Foundation this week.

“Even though I’m a pro-crypto, pro-bitcoin maximalist person, I do wonder whether at this point bitcoin should also be thought of in part as a Chinese financial weapon against the US,” the PayPal cofounder said. “It threatens fiat money, but it especially threatens the US dollar and China wants to do things to weaken it.”

Thiel, a Facebook board member and cofounder of Palantir Technologies, was expanding on his discussion about China not liking that the US dollar is the world’s preferred reserve currency. He said if China has a long position on bitcoin, then the US should be seeking answers on its stance from a geopolitical perspective.

The Asian economy recently created its own digital currency – a cyber yuan that is controlled by its central bank. Thiel referred to it as a “totalitarian measuring device,” rather than a real cryptocurrency.

The tech billionaire, who publicly supported former President Donald Trump’s 2016 presidential campaign, was joined by former Secretary of State Mike Pompeo and former National Security Adviser Robert O’Brien at the seminar. Their discussion, hosted by the Nixon Foundation’s chief executive, largely focused on big tech issues and US-China relations.

Thiel, known for his controversial views, also criticized Google and Apple for working too closely with China. He called out Google for its work on artificial intelligence, saying that the tech giant was effectively working with the Chinese military, and not the American military, according to a transcript of the event seen by CNBC.

He separately called for tighter scrutiny on Apple “because the whole iPhone supply chain gets made from China.”

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Billionaire ‘Bond King’ Jeff Gundlach said stocks will crash, predicted a weaker dollar, and questioned bitcoin in a recent interview. Here are the 10 best quotes.

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2011 Jeffrey Gundlach co-founder and Chief Executive Officer and Chief Investment Officer of DoubleLine speaks at the 16th annual Sohn Investment Conference in New York May 25, 2011.

  • Jeff Gundlach, the billionaire investor known as the “Bond King,” predicted in a RealVision interview in October that stocks would crash in less than 18 months.
  • The DoubleLine Capital CEO also said the US dollar would dive in the long run, argued that tech stocks like Apple and Amazon were the only US equities worth owning, and questioned bitcoin, welfare, and Chipotle’s valuation.
  • Here are Gundlach’s 10 best quotes from the discussion.
  • Visit Business Insider’s homepage for more stories.

In a RealVision interview filmed and released in early October, the billionaire “Bond King” Jeff Gundlach said stocks would crash within 18 months, predicted that the US dollar would tumble in the long run, and voiced his doubts about bitcoin.

Gundlach, the founder and CEO of DoubleLine Capital, also called out Chipotle’s valuation, criticized welfare, and argued that the only US equities that made sense to own right now were the largest technology stocks.

Here are Gundlach’s 10 best quotes from the conversation, condensed and lightly edited for clarity:

1. “Valuation makes absolutely zero difference when you’re in a true, brutal bear market. You just go to prices that you just can’t believe.” – on the tricky 1994 bond market and how it prepared him for the financial crisis.

2. “I’m actually long the dollar now, even though I don’t believe in it at all. It’s a good investment for the next five years.” Gundlach added that he was “very, very negative long term on the US dollar” because of the ballooning budget deficit and the prospect of higher inflation, and that he sees betting against it as “the big trade for the years ahead.”

3. “If I want it to invest for my great-great-great-great-grandchildren, I’m positive that certain real-estate investments and certain resource investments would be obvious winners. Who cares about your great-great-great-grandchildren?” – on the need for fund managers to balance the lower risks of a longer investment time frame with investors’ impatience.

Read more: GOLDMAN SACHS: Buy these 15 stocks set to deliver the strongest possible profit growth and subsequent returns through year-end

4. “If you want to own US stocks, you should own those six knowing that you’re going to take a bloodbath if you overstay your welcome … You’ve just got to have your finger on the exit button or pretty close by, but I think that’s your only chance of making money.” – advising people that they should own Apple, Amazon, and the other “big tech” stocks that have driven the market in recent years.

5. “The one that just blows my mind is Chipotle. I just can’t understand why the stock has tripled over the last six months. It just baffles me. Isn’t the price-to-earnings ratio like 150 or something? That’s a lot of tacos.”

6. “I do think that within 18 months it’s going to crack pretty hard. When the next big meltdown happens, I think the US is going to be the worst-performing market.” – predicting a stock-market crash that would be exacerbated by a weakening dollar.

Read more: ‘The largest financial crisis in history’: A 47-year market vet says the COVID-19 crash was merely a ‘fake-out sell-off’ – and warns of an 80% stock plunge fraught with bank failures and bankruptcies

7. “It’s comical how people talk about modern monetary theory or universal basic income as some wacky idea. We’ve been doing it since the 1960s. What do you think welfare is? It’s universal basic income, just for a certain subset of the population. It hasn’t exactly solved the problems. In fact, in my view, it’s made it much worse.”

8. “I don’t believe in bitcoin. I think that it’s a lie. I think that it’s very tracked, traceable. I don’t think it’s anonymous.” Gundlach later added that he was “not at all a bitcoin hater.”

9. “I prefer things that I can put in the trunk of my car. I prefer my Mondrian on the wall to a digital entry that has the same value.” – on his preference for physical investments

10. “It will be quite a pleasant experience to not be in the car on the first wheel of the roller coaster that’s coming.” – on his cautious approach to investing in anticipation of a crash

Read more: Bank of America lays out its scenario for how the next big top in stocks will form – and pinpoints the trigger that could cause a meltdown shortly after

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