Bill Gross warns global markets reaching 'point of low return'

By Jennifer Ablan

NEW YORK (Reuters) - Bill Gross, the closely watched bond investor, on Thursday lambasted central banks around the world for unconventional monetary easing and advised investors to curb risk-taking going into 2015 as global markets are reaching "the point of low return" and diminishing liquidity.

Gross, who oversees the Janus Global Unconstrained Bond Fund, said "investors may want to begin to take some chips off the table," given the current environment. "Raise asset quality, reduce duration, and prepare for at least a halt of asset appreciation engineered upon a false central bank premise of artificial yields, QE (Quantitative Easing) and the trickling down of faux wealth to the working class."

In his third investment outlook letter since joining Janus Capital Group Inc, Gross asked: "How could they? How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt?"

The Janus Global Unconstrained portfolio, which Gross began managing in October, attracted an estimated $364 million in client deposits in the first full month since his arrival, bringing assets to $442.9 million through Oct. 31, according to Morningstar data. Janus Capital posted a total of $1.1 billion in net inflows in October, the largest net deposits this year, after hiring Gross.

Last month, Soros Fund Management LLC, chaired by legendary investor George Soros, invested $500 million in an account run by Gross, Denver-based Janus Capital said.

The roughly $7 trillion pumped into the financial system since the financial crisis by the world's three biggest central banks has succeeded mostly in lifting prices of securities rather than the cost of goods and workers' wages, Gross said.

The U.S. Federal Reserve, the Bank of Japan and the European Central Bank have all taken extraordinary policy measures since the 2008 crisis to stabilize their economies and try to create a moderate amount of inflation.

Results have largely been disappointing, with none of the three central banks able to guide their preferred measures of inflation to their target levels of around 2 percent.

"It has been a nursery rhyme experience for sure, but more than likely without a fairy tale ending," Gross said.

Gross, whose letters to investors are as famous for their quirky asides and analogies as they are for their economic and market analysis, introduced his December investment outlook letter with a children's nursery rhyme to convey the state of the world today: "Punch and Judy fought for a pie. Punch gave Judy a sock in the eye. Said Punch to Judy, 'Would you like anymore?' Said Judy to Punch, "No my eye is too sore."

Gross, who has absorbed quite a few blows lately himself after a run of mediocre returns and billions of outflows from various funds he previously managed, said: "Can a debt crisis be cured with more debt? It is difficult to envision a return to normalcy within my lifetime (shorter than it is for most of you)."

Gross, long known and still considered the world's "Bond King," quit bond giant Pacific Investment Management Co (Pimco) on Sept. 26 for distant rival Janus. Two sources had told Reuters he was expected to be fired the next day.

Gross helped launch Pimco more than four decades ago and built into a $2 trillion investment powerhouse, only to see his reputation suffer after a run of lackluster returns, more than a year-and-a-half of outflows from Pimco's flagship fund, and unflattering stories about his management style.

Gross said in his latest investment outlook that if Federal Reserve Chair Janet Yellen were Little Miss Muffet, "she would be hoping to eat the 'curds and whey' of 2 percent to 3 percent real economic growth while avoiding spiderous increases in future prices.

"Ah, policymakers. Perhaps the last five years have been one giant nursery rhyme," he wrote.

(Editing by Jeffrey Benkoe and David Gaffen)