Healthcare Sector Thrives, Financials Remain Handcuffed
Bill Gross Seems Bullish on India and the Emerging Markets
Healthcare should thrive
From a sector perspective, Bill Gross think that “healthcare should thrive.” The healthcare sector had a decent run in 2014–2015. The Health Care Select Sector SPDR ETF (XLV) returned close to 20% over the past two years. Healthcare sector companies in the US including Anacor Pharmaceuticals (ANAC), Dyax (DYAX), and ABIOMED (ABMD) saw their stocks rise by 188%, 158%, and 117%, respectively, over the past year as of January 11, 2016. Boston Scientific (BSX) and Eli Lilly (LLY) also returned over 19% and 17%, respectively, to investors over the past year.
Healthcare demand
Given the US economy’s demographic profile, with more Baby Boomers relying on fewer Millennials in the years to come, Gross expects to see the healthcare sector and associated companies flourish with increased demand for healthcare needs, reduced production of healthcare aids, and services with a rising median age statistic.
Financial sector will remain handcuffed
While Gross expects the healthcare sector to thrive, he sees the financial sector (XLF) handcuffed with gigantic liabilities on its balance sheets. On several previous occasions, we heard Gross talk about how the zero-bound interest rates have been destroying liability-based capitalist models like pension funds and insurance companies. According to Gross, “zero destroys existing business models such as life insurance company balance sheets and pension funds, which in turn are expected to use the proceeds to pay benefits for an aging boomer society.” These entities’ business model seeks to grow money on interest rates and shell out part of it as claims arise. This has gone out the window.
The impact isn’t limited to the US. Gross talks about a Financial Times report. It revealed that “the UK pension industry faces a 20-year wait until they might have enough cash to meet their liabilities in 2036.” Baby Boomers have been involved in artificially inflating asset prices. They might find it difficult to sell the assets with a good return, especially with interest rates nearly zero-bound in most developed countries. In today’s world, the 1% of people that have been thriving on the asset price elevation may need more superficial boosters to keep them oblivious to the US economy’s (SPY) actual situation. The other 99%, including a large proportion of Baby Boomers, might want to take “extra doses of Xanax” as reality unfolds.
Are Millennials ready to pay for it?
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