zzBill Gross: You’re going to lose money investing

Bill Gross, Pimco’s chief investment officer, used his monthly investment outlook to take on the timely topic of haircuts.
For those unfamiliar with the jargon, a haircut is simplistically defined as an imposed trimming of the value of an investor’s holding. As the Total Return Fund /quotes/zigman/185339PTTAX0.00% manager points out, this can come in all shapes and sizes
His conclusion: every investor will take some sort of haircut. And it’s mostly because the central banks say so. Here’s his rundown of where the barbers are lurking:

• Negative real interest rates: The cost of borrowing is so low that investors earn negative money when they subtract the rate of inflation from the interest rates on government bonds. Those rates, Gross says, are being held down through quantitative easing. He adds: “Investors are being haircutted by at least 200 basis points judged by historical standards, which in the past offered no QE and priced Fed Funds close to the level of inflation.”
• Inflation and currency devaluation: Inflation is nothing new, but if it gets out of control, investors take a hit when their holdings lose relative value. Plus, it often goes hand in hand with currency devaluation, which can further impair purchasing power.
• Capital controls: federal policies aimed at controlling the flow of money, which cuts into return on capital. Such examples include currency pegging, and taxes on incoming capital, Gross says.
• Default: The most traditional form of haircut, where the borrower of money fails to repay it when due. But it speaks to the larger point that investments are only repaid when the assets backing them perform. If asset prices don’t go up, bonds may default.

Last month Gross said he wasn’t necessarily a great investor. This month is he saying no one is? Well, not exactly. You may lose money investing, but don’t necessarily invest it under your mattress instead. As he says:

“The easiest answer to the question of what to buy is to simply take your ball and go home. If the rules aren’t fair, don’t play. That endgame however, results in a Treasury bill rate of 10 basis points or a negative yield in Germany, France and Northern EU markets. So a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing. PIMCO’s advice is to continue to participate in an obviously central-bank-generated bubble but to gradually reduce risk positions in 2013 and perhaps beyond.”

Gross continued on that risk-averse theme when he tweeted his latest thoughts on the economy Thursday morning: