Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bill Gross: Fed is "Certainly Set to Go"

Interest-Rates / US Interest Rates Dec 04, 2015 - 04:56 PM GMT

By: Bloomberg

Interest-Rates

Bill Gross of Janus Capital Management joined Bloomberg Radio and Television to react to today's jobs report.

Gross said the Federal Reserve is "certainly set to go…Fed is ready to go I think because of concerns on the real economy."

When asked if he lost money yesterday, Gross said: " Oh no, made money yesterday. I had lots of calls, sold lots of calls on five and 10-year German bunds, went the other way this time and so made a lot of money, making a lot of money today on those particular trades."


MICHAEL MCKEE: I guess this one is in train now.

BILL GROSS: Well, yes, they are certainly set to go. And it's something that I have been encouraging for a while, not because of the tightness of the labor market or the fact that wages are increasing. As a matter of fact, wages were up 0.2 percent and the YOY is 2.3 percent relative to 2.5. So there is no pressure from the standpoint of wages, but the Fed is ready to go I think because of concerns on the real economy.

And it's going to be an interesting experiment over the next three months or so, I'd say, they shift to a new policy in terms of determining the Fed funds rate, the -- using the excess reserves in terms of an interest rate as a top, and using reverse repos as a bottom. They're going to have to work with that.

TOM KEENE: And I think they're going to need at least three months to make sure it's smooth.

KEENE: Bill Gross, you wrote about Wiley Coyote yesterday. I don't think that translates in Paris, France too well. So what I would suggest, Bill, is please address for the international audience how Janet Yellen can avoid international mediocrities, including the challenges Mario Draghi has.

GROSS: Well the Fed has sort of backed off of their QE almost 12 months ago. Draghi continues. And Draghi's policy statement yesterday was quite interesting because he gave the market most of what they wanted. He's still in a whatever it takes mode.

He did give them quantitative easing for six more months. He included additional assets. It seemed like a very stimulative type of forward statement, but the market I think had a sense that since the amount wasn't increased that perhaps the ECB is the last bastion of quantitative easing and monetary, easing policy basically is at its limits.

KEENE: Right. Mike, I want to cut in here. This is an incredibly important question. Bill Gross, how many billions of dollars did you lose yesterday?

GROSS: Oh no, made money yesterday. I had lots of calls, sold lots of calls on five and 10-year German bunds, went the other way this time and so made a lot of money, making a lot of money today on those particular trades. So I think the U.S. is in a better position in terms of their yields relative to Germany and the EU, although to be fair, if $60 billion a month has been extended by six months and we've got with 18 months to go that's a trillion euros to go, and that puts their balance sheet close to EUR4 trillion euros relative to the Fed's balance sheet of EUR4 trillion with a much larger economy. So there is a lot of firepower left, and it pays to be careful when a central bank employs what I call a Martingale strategy, which is basically double up to catch up.

MCKEE: Well we thought until the Mario Draghi press conference yesterday, Bill, that we had a narrative going. They were stimulating. We were going to start raising rates and you would see the divergence trades in place. It could be predicted, but now it seems like what has brought back to the market is a lot of volatility, and we can't necessarily say we're going to see a big bond selloff here in the United States, and the opposite overseas, and the dollar gets stronger and the euro get weaker. We're not sure what's going to happen.

GROSS: And the United States has for the last 12 to 24 months have been talking about the new neutral interest rate. Right now the forward market in terms of Fed funds is basically forecasting the 80 to 85 basis points higher from a year from now, and then another 60 or so two years from now and then another 40 or so three years from now. So the pace, the expected pace is like 75, 50, 50. And that eventually takes us up to close to two percent, which is what I think is the neutral level given normal economic conditions.

KEENE: Bill, one more question and then we want to get to Alan Krueger of Princeton University helping out this half hour. Bill Gross, I'm sitting here in the city hall of Paris. And the basic idea is this is the land of perpetuity bonds. Is the thing that America is missing in our new fixed income world that we need longer duration bonds? Do they make sense for investors?

GROSS: Well not really at these levels do they? I mean and let's talk about pension funds, and I know you mean individual investors, but basically the same thing. Do they want to lock in future liabilities basically at a three percent level for a 30-year treasury or, amazingly, at a 2.69 percent level for a 30-year swap, to get a little esoteric?

KEENE: Yes.

GROSS: But anyway, does that pay the bills going forward? I don't think so. You know that for sure by looking at pension estimates they expect seven to 7.5 percent in terms of a 50/50 stock and bond mix. Do individual investors get that from a three percent long bond? I don't think so. I think it pays for the treasuries of these countries to issue long debt, as opposed to individuals and corporations to buy them.

MCKEE: Bill, we've got Alan Krueger of Princeton University here. Alan, we've got time for a quick question for Bill if you've got one.

ALAN KRUEGER: Well I guess I was a little bit confused on the long bonds. If you think there's not going to be much demand for them, wouldn't the interest rates be lot higher than three percent?

GROSS: Well there's not going to be a lot of issuance, first of all, as you know, next year from the treasury, going to be very mild period of time in terms of issuance. And there is still accumulation from Japan and from China, plus or minus. We're not quite sure what China does, but there is demand there. And there is demand, Alan, from corporations, surprisingly. I don't think there should be, but there is demand because they issue debt and then they basically hedge it out and turn it into short-term debt by basically receiving or buying long-term swaps.

That's a strange situation these days in terms of financial markets and in terms of the varying interest, but it seems to me that if Fed funds peak at two percent during this particular cycle that there's not much downside in price, and not much upside in yield for U.S. treasuries to buy. I would simply favor them versus German bunds or anything in Europe, still in a negative camp up to five years of course.

Bloomberg Radio and Television

bloomberg.com

Copyright © 2015 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

© 2005-2022 http://www.MarketOracle.co.uk - 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