Bill Gross, the influential investor, has warned that although the Federal Reserve has started raising interest rates this week, the US central bank will not be able to implement a planned series of further hikes because it “will be the economy would crack”.
The founder of investment house Pimco told the Financial Times this week that he believes inflation is approaching worrying levels, but the US central bank will not be able to push through higher policy rates to contain it.
“I suspect you can’t get above 2.5 to 3 percent until you break the economy again,” he said. “We just got used to lower and lower rates and anything much higher will break the housing market.”
Gross’s concerns contrast with the consensus of central bank policymakers and market expectations of a policy rate of 2.8 percent in 2023 and calls from St. Louis Fed President James Bullard to close by the end of this year. to get 3 percent.
Gross has been referred to as “the bond king” for his decades of successful investing. Gross has been protesting low policy rates for years.
“It destroys the savings function,” he said. “Meme Stocks and NFTs [non fungible tokens]all this nonsense in my mind has arisen from the inability to earn a decent return in your 401k” retirement plan.
It’s probably the best thing I’ve left [Pimco]† When you’re 72, you start to lose it
Over the past 18 months, he’s been putting his personal money where his mouth is, using options to bet against GameStop and AMC, the most prominent meme stocks whose stock prices have been inflated by retail enthusiasts.
While he initially suffered enough losses that he stopped sleeping and closed some of his positions, he says he is justified by rapid declines in the shares of both companies. “Maybe I’m an old fart. † † but in total I may have increased $15 million to $20 million.”
Gross also benefited greatly from a decision to buy partnerships that invest in natural gas pipelines. He freely admits that his interest was piqued by their tax structure – dividends are reinvested and not taxed until the company is sold. Now the position is benefiting from significantly higher energy prices as a result of the outbreak of the pandemic and the war in Ukraine.
Gross, 77, still wakes up early and spends five hours a day at his Bloomberg terminal. But he has given up all thoughts of another comeback after his bitter forced departure from Pimco in 2014, a nasty divorce in 2018 and a disastrous attempt to run a new fund for Janus Henderson.
Discomfort over the way he thought he would be portrayed in a new book recently led him to write his own memoir. “I wanted to set the record straight,” he said.
The process has forced him to admit his own shortcomings and insecurities. In his last days at Pimco, when he famously argued with other top executives, “I was too sensitive and that was disruptive,” he said. “It’s probably the best thing I’ve left behind. At 72 you start to lose it, and at 77 you lose it even more.”
He attributed his poor investment with Janus to taking on too much risk in an effort to beat his old company, but also regrettably admitted that going solo forced him to recognize the value of his former colleagues.
“I missed Pimco’s investment committee,” which met daily, he said. “This was a company of confederate kings and queens. I had some responsibility for hiring and retaining them at the company. But these people are good.”
He now believes that the bond king’s flamboyant image was not only a great marketing tool that attracted customers, but also allowed him to hide his fear and awkwardness. “People who want to be famous basically want to be loved and I wanted to be famous,” he said. “It’s a neurotic obsession with being loved.”
That’s not to say Gross has gone all soft. In recent years, he has had bitter quarrels with a neighbor who objected to a sculpture installed in Gross’s Laguna Beach home. The two have gone to court twice over allegations that Gross played loud music, including the theme from the US TV show Gilligan’s Island, to annoy his neighbor.
A fed up judge eventually sentenced Gross to five days in prison for contempt of court, but suspended it when he was doing community service preparing meals at a local shelter. Gross found the experience cutting carrots and onions “instructive” and donated $15,000 to the organization. But he fears further legal troubles as the neighbor has appealed the permits allowing Gross to keep the statue.
Although he remains estranged from the child he had with his second wife, Gross has remarried and is close to his two older children. “When you’re in the late 70s and early 80s, it’s like the death zone,” he said. “You’re just waiting for the prostate cancer. But it also allows you to be more happy in the moment.”
This post Bill Gross warns Fed rate hikes ‘will crack US economy’ was original published at “https://www.ft.com/content/5ab01f85-bcc3-4dd7-b2ff-31195425be43”