BILL GROSS: 'How Could They?'

Gross starts his letter with a discussion of some social norms that were accepted in the 20th century that we now find abhorrent.

And now, when we look back at things to which people used to turn a blind eye: domestic violence, racial and sexual discrimination, and smoking almost everywhere, the question we ask is, "how could they?"

Turning to our current, broad-based efforts to fight huge debt loads with more debt, Gross wonders if our grandchildren will look at the actions of today's policymakers and say, "how could they?"

Gross writes:

"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? How could fiscal authorities have stood by and attempted to balance budgets as opposed to borrowing cheaply and investing the proceeds in infrastructure and innovation? It has been a nursery rhyme experience for sure, but more than likely without a fairytale ending."

Gross writes that now, "it is difficult to envision a return to normalcy within my lifetime."

"Markets are reaching the point of low return and diminishing liquidity," Gross writes.

"Investors may want to begin to take some chips off the table: 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 and the trickling down of faux wealth to the working class."

A stern warning from Gross, the man formerly known as the Bond King.