Best of the Week
Most Popular
1.Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - Nadeem_Walayat
2.Gold And Silver – A Reality Check - Michael_Noonan
3.The Killer Ape, Human Evolution, Artificial Intelligence and Extinction End Game - Nadeem_Walayat
4.Stock Market S&P 500 Volatility-Based Price Probability Range - Richard_Shaw
5.A Stocks Bear Market Is Now More Likely Than Not - Richard_Shaw
6.Money Supply and the Fed’s Serious Inflation Risks - Zeal_LLC
7.More Selling for Stock Market, Gold? - Brad_Gudgeon
8.Gold, Silver Precious Metals: a Critical Week Ahead - Rambus_Chartology
9.Gold Price Change in Character - Gary_Savage
10.Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - TLSReport
Last 5 days
Dr Copper Back from the Dead - Time to Buy or Blink - 8th Oct 15
Glencore Rout Blamed on Short Sellers Playing With CDS - 8th Oct 15
The Real Reason for the Refugee Crisis You Won’t Hear About in the Media - 8th Oct 15
US Stocks: The [Trend]Line Between Bull and Bear Market - 8th Oct 15
Bundesbank “Reassures” Re. Gold Bullion Reserves as Deutsche Bank Shocks With €6 Billion Loss Warning - 8th Oct 15
How Our Aversion To Change Leads Us Into Danger - 8th Oct 15
Moving Stem Cell Research Forward: Bernie Siegel of the Genetics Policy Institute - 8th Oct 15
Stock Market VERY IMPORTANT Turn Date - 7th Oct 15
The 5th Convergence…An Economic & Financial Superstorm That Will Devastate America - 7th Oct 15
Summers Grades Janet Yellen's Fed Performance 'Incomplete' - 7th Oct 15
Gold Versus Central Banks Paper Ponzi - 7th Oct 15
QE3 is Over Get Ready for QE4 - 7th Oct 15
How to Profit from Government Mandates in Biofuels - 7th Oct 15
A Key Oil Price Trend That Everyone Is Missing - 6th Oct 15
Stock Market Turn Appears to Have Been Made - 6th Oct 15
Designing a Dividend Growth Portfolio for a Specific Retirement Yield Objective - 6th Oct 15
Peter Schiff Predicts Gold Price Breakout - Video - 6th Oct 15
Theresa May Declares War on Immigration - Conference Speech Full Transcript - 6th Oct 15
Is Russia Plotting To Bring Down OPEC? - 6th Oct 15
Target Date Funds As Aid In Retirement Investment Portfolio Design - 6th Oct 15
Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - 6th Oct 15
Redesigning Internet and Facebook to Explore Their Full Potentialities... - 5th Oct 15
Nightshades Curb Your Enthusiasm - 5th Oct 15
U.S. Recession Watch, High-Yield – Rising Defaults - 5th Oct 15
The Social Challenge to Find Humanity in Capitalism - 5th Oct 15
Fed Interest Rate Hike: "I don't care. It doesn't really make much of a difference" - 5th Oct 15
Gold Rose 2.2%, Silver Surged 5.4% After Poor Jobs Number On Friday - 5th Oct 15
Gold, Silver Precious Metals: a Critical Week Ahead - 5th Oct 15
Stock Market Correction Still in Force - 5th Oct 15
Gold Price Change in Character - 5th Oct 15
Putin’s Blitz Leaves Washington Rankled and Confused - 4th Oct 15
More Selling for Stock Market, Gold? - 4th Oct 15
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

PIMCO's Gross: Fed Will Still Taper After Jobs Report

Interest-Rates / Quantitative Easing Sep 07, 2013 - 06:17 PM GMT

By: Bloomberg


PIMCO's Bill Gross appeared on "Bloomberg Surveillance" today, telling host Tom Keene: "I think Bernanke and company are committed to a taper...It will be taper lite as opposed to a strong tapering." Transcript below.

Gross on today's jobs report being the new normal:

"Yes, it sure was. And I guess the revision of last month was the biggest shocker. And the fall, of course, as you mentioned in terms of the participation rate from 63.4 to 63.2. You know, the unemployment rate is down, for those that focus on the unemployment rate, it is 7.3 percent. They would simply suggest we are closer to tapering and closer to a fed funds increase at some point. But I would suggest otherwise, that it is really a weaker economy as evidenced by today's report."

On whether the Fed will taper September 18:

"Yes, perhaps. I think they will. You know, much like the red line in Syria, I think Bernanke and company are committed to a taper and the sooner the better. The taper is really a factor not necessarily of the growth or the strength of the economy, but the fact that at some point, three to six months ago, Governor Stein, for instance, wrote about the impact that tapering and QE is having on risk assets and the potential for a bubble. So I think the fed is really focused on de-bubbling risk markets in terms of a frenzied narrowness of spreads, or even a frenzied peak in terms of equity prices. And they will taper in September, but it will taper lite as opposed to a strong taper. And what does that mean? That means to us perhaps $10 billion. And mainly, by the way, on the treasury side as opposed to the mortgage side."

On whether this is two Americas:

"I think so. It has been for a long, long time...And as the rich get richer, the middle class, as Obama is want to characterize the poor, basically stands still or even moves in reverse as their wages don't keep up with inflation. So it is certainly two Americas. At this point, and for the past three to four years, the fed and the government has focused primarily on reinvigorating the financial markets, which are the bastion basically of the first America, the one percent or the five percent. But 95 percent are not participating and that ultimately affects economic growth no doubt."

On whether nobody wants to work in America:

"Well, I think people want to work. We've seen they want to work, but they want to work for a decent wage and the wanting isn't necessarily fulfilled by global forces and by structural forces such as technology and corporate downsizing to improve bottom line targeting. So wanting a job or not wanting a job, to my way of thinking, is not really the factor - the headwinds of globalization which sees China and others replace U.S. jobs with technology, which sees robots replace jobs, and corporations which basically want to improve their productivity by eliminating jobs."

On whether he's having fun right now:

"Well, to me fun is characterized by challenge and competition. And certainly this market is challenging money managers, certainly bond managers in ways that they have never been challenged before. So to the extent that you want to play in the Super Bowl and to the extent that you want to be in the big time with a big time challenge, this is the time to play and I'm excited to do it."

On how he frames the ten year yield future:

"Well, our view is dominated not by QE and tapering, which influences the ten year yield, but by the front end and how long the fed stays there. To the extent that they stay there until 2015 or 2016, that acts as a magnate so to speak, as a force that keeps the ten year from increasing, if only because the three percent yield and the roll down associated with it produce returns of four percent to five percent - very attractive. So if the Fed stays where they are and this morning, for instance, Evans suggested that it might take six percent unemployment to produce a fed funds increase, then basically there is value in the bond market, value in the ten year to your question. There is more value, in our opinion, in the front end because, believe it or not, the forward - see it gets a little complicated here - but forward interest rates, the fed funds future so to speak, in 2008 are anticipating nearly a four percent fed funds rate and we are at 25 basis points. That becomes rather ludicrous in the face of this particular report and the expectation that the economy remains in a new normal, as opposed to an old normal type of world."

On whether he would predict now or in the near future that there will be serious illiquidity as there are bond portfolio redemptions:

"Perhaps in the market per se, not with PIMCO. I mean the total return fund has ten percent cash. We've got $25 billion in cash. So liquidity problems? No. I think what we've seen in core bond funds industry wide is an outflow. Because PIMCO total return is the biggest and the best, by the way, we get focused on in terms of the headlines. But our friendly competitors, Vanguard and Double Line and so on, are all in the same boat. In PIMCO's case, when money comes out of total return, that is basically a choice on the part of an investor to move to either a lower duration or a different asset class, such as unconstrained bond funds, which have a lower duration target. And so PIMCO loses a little bit of flow in terms of total return, but gains that flow back with unconstrained or with an alternative asset. So PIMCO is not suffering. The total return fund is losing some assets, but that is a choice on the part of the investment public and we are well prepared for it."

On what PIMCO is pinning its forecasts on:

"Right, a wonderful question. You guys all ask wonderful questions. In this particular case, we have talked about the fundamentals for the past few minutes. The markets are being influenced by what we call technicals as well. And this doesn't refer to a head and shoulders pattern or a shampoo, but it refers to technical flows that are coming, or outflows, to put it frankly, that are being instigated, yes, by the fed and potential tapering, but also by retail. We just talked about that and pulling money out of core bond funds. Banks are under pressure in terms of regulatory influences and cutting down and reducing their assets. And believe it or not, foreign central banks, in the attempt to support their own currency and financial markets, are selling treasuries. So it is not just a question of the unemployment rate or the jobs report. It's a question of whether these technical structural influences stop at some point. And, for the moment, they are feeding on themselves."

On whether Bernanke is working out of a textbook:

"We talked about yesterday in an investment committee. It was sort of a joke, but not so much of a joke actually. There is the London school and the Chicago school. And I suggested perhaps the Phoenix school of economics in terms of modeling will now dominate going forward. There are legitimate questions as to whether increasing interest rates will be a negative for economic growth as opposed to a positive. And there are legitimate questions - this is Bernanke's model - that lowering interest rates and quantitative easing has produced stronger economic growth. Yet one could say, if you are in Phoenix I suppose, that the higher the interest rate and the higher the return on investment in real assets, that being plants and equipment, houses and so on, that the more opportunity and the higher willingness to invest. So, yes, London, Chicago, Keynes, neo-Keynes, perhaps we're all in a world in which models are being readjusted as we speak."

On where the economy is going:

"We still see a two percent U.S. economy. We think in the last month that the economy has been proceeding at 2.5 percent. And yes, as fiscal austerity becomes a little bit less as we move into 2014, perhaps you see stronger growth. And we're seeing importantly euro land flattening out at least and the U.K. exhibiting two percent to three percent growth. So the world itself is doing better, aside from emerging. But the developed countries are doing better. So it's a more decent forecast going forward. But the old three percent to four percent Minsky types of numbers, which can be produced by big government and what they call a big bank or a thing of the past if only because the labor force is only growing at 0.5 percent. And labor force growth at 0.5 percent, plus productivity at the high side - maybe two percent, only leads to 2.5 percent growth on a long term basis."

Audio link courtesy of Bloomberg Surveillance:

Copyright © 2013 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Bloomberg Archive

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History