Investors in the present climate would be better off preserving capital rather than fixating on high returns, bond guru Bill Gross told clients Thursday.

In his latest monthly take on the markets, Gross worries over the explosion of credit since the financial crisis — up to $65 trillion total in the U.S. now, with $12 trillion coming since 2007, according to his count.

Making sure that doesn't come toppling down is the job of central banks like the Federal Reserve, which Gross said has done a good job so far of walking a tightrope but faces a perilous task ahead. The Fed has to make sure that interest rates aren't too high to make the cost of capital prohibitive or too low to thwart returns for savers, pension funds and insurance companies.

Fed Chair Janet Yellen "is a modern day Goldilocks," Gross, a portfolio manager at Janus Capital, said in the letter. "While the recovery has been weak by historical standards, banks and corporations have recapitalized, job growth has been steady and importantly — at least to the Fed — markets are in record territory, suggesting happier days ahead.



"But our highly levered financial system is like a truckload of nitroglycerin on a bumpy road."

Gross, who runs the $1.9 billion Janus Unconstrained Bond fund, has been sending cautionary signals about markets and the Fed's role in maintaining them for months. He has warned investors about both stocks and bonds even as equities have continued to rally.