The man who managed more than $1.2 trillion during his tenure at PIMCO, shocked investors when he said it would only take a spark to start a “run on the shadow banks.”
These “shadow banks” include mutual funds, hedge funds, exchange traded funds, and money market accounts that aren’t required to maintain reserves or emergency levels of cash like a traditional bank.
And according to Mr. Gross, a “run on the shadow banks,” sparked by “a central bank mistake, a geopolitical problem or developments in Greece or China” could trigger a run that central banks and governments can’t control like they did the during the last crisis.
Mr. Gross when on to warn that these “shadow banks” are the market. And any rush to get money out would see prices falling like a rock.
Worse yet, he stated, that the “markets have not been tested during a stretch of time when prices go down and policymakers’ hands are tied to perform their historical function of buyer of last resort.”
The bottom line is that we are in uncharted waters. With the market teetering on the brink of disaster right now. America is about to experience a “cash flow trap” that will make it nearly impossible for investors to get their money to safety.