Bill Gross on Deflation, Stocks, and Bob Prechter’s Debt Destruction

Bill Gross on Deflation, Stocks, and Bob Prechter’s Debt Destruction

Bond legend Bill Gross shared his latest outlook with CNN Money – and I was glad to see him weigh in on deflation in particular:

What about the possibility of deflation occurring?

We’re in a struggle between inflation and deflation right now. We may never get to a negative consumer price index, but the danger is a drop in asset prices and the destruction of credit. It means corporate bonds defaulting because companies aren’t getting enough business and they can’t pay off their debts. It means foreign governments defaulting. It’s individuals with mortgages who can’t get out from under their 16 tons of debt. The economy can’t recover, and unemployment stays high. Stocks would be in trouble because some companies would be going bankrupt while others couldn’t get the credit they need to grow.

So which is the bigger risk now — inflation or deflation?

Our investment committee has sketched out four possible scenarios. Scenario A is that the global economy rebounds back to past levels of high growth. B is just a decent rebound. C is that new normal — half-sized growth. And D is deflation, debt, destruction. I’d say we’re at a C — right now. We believe in the new normal, but what we’re seeing in Europe puts the minus on that C grade.

You can read Gross’ full interview here.

Scenario D that Gross mentions – where credit is destroyed faster than the Fed can create it – is the ugly deflation scenario Robert Prechter believes is unfolding.  And also the scenario I am partial too.

I concur with Gross in that we’ve seen the rosier scenarios (A & B) come and go – you can probably rule them out now (if you hadn’t from Day 1).  Now, we’ll see whether or not the global economy can skate through the “New Normal” without falling off a cliff.

More Bill Gross: His take on Portugal and Europe’s Sovereign Debt Mess

  • Legrand

    I enjoy your recaps of intelligent people like Gross and Prechter. I also enjoy listening to FSN, and really enjoyed

    What I don’t like about FSN is that they are so sold on inflation that even when they get a chance to talk about someone like Prechter, they kind of squander the opportunity. FSN was wrong in their outlook several months ago, big time.
    Bottom line what bothers me about them is that they appear to be looking at all sides, but in reality they are in the inflation camp no matter what. That’s a dangerous place to be- to have your mind made up before even hearing the other side, and to in essence be blind to what the other side of the argument is really saying. Time will tell whether FSN and their clients win or lose with their inflation-heavy positions and advice.

  • Brett

    Thanks and yeah I agree, great point. On one hand they do give some of the best interviews out there. But it’s annoying when they parade out deflation guys like Prechter, Dent – and then later conclude why these guys are wrong about their stance, and why inflation will prevail.

    That’s been my frustration with many of the inflation-minded analysts – they will give credence to the deflation argument at times, only to ultimately chop it down with reasoning like “but the government will ultimately print it’s way out, hence inflation will prevail.”

  • Carson Gross

    Anyone with the last name Gross grew up with a stark, cynical view of reality.

    Just be careful. Sometimes they are just trying to con you into doing something you shouldn’t, as payback for third grade teasing.


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About Author


Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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