Bill Gross warns of investor fatigue

Central bankers must figure out a way to generate better economic growth by next year or markets will “go south” as investors lose faith, according to Bill Gross, manager of the $1.3 billion Janus Global Unconstrained Bond Fund.

“Capital gains and the expectations for future gains will become giant pandas - very rare and sort of inefficient at reproduction,” Mr Gross wrote in his outlook for Janus Capital Group.

“Developed and emerging economies are flying at stall speed and they’ve got to bump up nominal GDP growth rates or else.”

Central bank efforts to stimulate economies with low or negative interest rates have failed to generate sustained growth while depriving investors and savers of returns on their money, according to Mr Gross.

Federal Reserve chair Janet Yellen signalled US policymakers will raise rates at a cautious pace while monitoring indicators such as foreign economies and core inflation, which strips out food and energy costs.

US nominal growth, which includes inflation, was about 3.1% last year, according to the Bureau of Economic Analysis.

By 2017, Mr Gross said, nominal growth needs to reach 4%- 5% for the US; 2%-3% for Europe; 1%-2% for Japan and 5%-6% for China.

“Or else what?” he wrote.

“Or else markets and the capitalistic business models based upon them and priced for them will begin to go south. Investors cannot make money when money yields nothing.

"Unless real growth/inflation commonly known as nominal GDP can be raised to levels that allow central banks to normalise short-term interest rates, then south instead of north is the logical direction for markets,” Mr Gross added.