Bill Gross, a powerful investor, has warned that even though the Federal Reserve started raising rates this week, the US central bank will not be able to push through its planned series of further hikes because it would “crush the economy.”
The founder of investment house Pimco told the Financial Times this week that he believes inflation is approaching alarming levels, but the US central bank will not be able to impose higher interest rates to contain it.
“I suspect you won’t be able to go above 2.5% to 3% before you crack the economy again,” he said. “We’re just used to lower and lower rates, and anything much higher will destroy the housing market.”
Gross’ concern runs counter to central bank consensus and market expectations of a 2.8% discount rate by 2023, as well as St. Louis Fed President James Bullard’s calls to reach 3% by the end of this year.
Hailed as the “king of bonds” for decades of successful investing, Gross has spoken out against low interest rates for years.
“It destroys the savings function,” he said. “Shares of memes and NFTs [non fungible tokens]all this nonsense in my mind came from not being able to make a decent profit on the 401k retirement plan.
For the past 18 months, he’s been putting his personal money into what he says, using betting options against GameStop and AMC, the most famous meme stocks whose stock prices have surged thanks to retail enthusiasts.
Although he initially took enough losses to stop sleeping and close some of his positions, he says he was vindicated by the rapid declines in both stocks. “Maybe I’m an old fart. . . but overall I grew up maybe $15-20 million.”
Gross also profited significantly from the decision to buy partnerships investing in gas pipelines. He openly admits that he was interested in their tax structure – dividends are reinvested and not taxed until the holding is sold. Now the situation is benefiting from a sharp increase in energy prices due to the exit from the pandemic and the war in Ukraine.
Gross, 77, is still an early riser and spends five hours a day at his Bloomberg terminal. But he has given up all thoughts of another comeback after an acrimonious forced exit from Pimco in 2014, a nasty divorce in 2018, and a failed attempt to set up a new fund for Janus Henderson.
Discomfort with how he thought he would be portrayed in the new book led him recently to write his own memoir. “I wanted to be clear,” he said.
This process forced him to acknowledge his shortcomings and insecurities. In his last days at Pimco, when he was known to feud with other top executives, “I was too sensitive and it was devastating,” he said. “Probably the best thing I have left. At 72 you start to lose it, and at 77 even more.”
He attributed his poor investment in Janus to too much risk in an attempt to outdo his old firm, but also ruefully admitted that working alone forced him to recognize the value of his former colleagues.
“I missed the Pimco investment committee,” which met daily, he said. “It was a company of bond kings and queens. I had some responsibility for hiring and keeping them in the firm. But these people are good.”
He now believes that the image of the flamboyant bond king was not only a great marketing tool to attract customers, but also allowed him to hide his anxiety 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 to be loved.”
This does not mean that Gross is completely softened. Over the past few years, he has been at odds with a neighbor who objected to the installation of a sculpture in Gross’ home in Laguna Beach. They went to court twice over allegations that Gross turned on 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 jail for contempt of court, but suspended him while doing community service while cooking at a local orphanage. Gross found the experience of cutting carrots and onions “edifying” and donated $15,000 to the organization. But he said he feared further legal trouble because a neighbor had filed an appeal against permits that allowed Gross to keep the sculpture.
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 your 70s or 80s, it’s like a death zone,” he said. “You’re just waiting for prostate cancer. But it also allows you to be happier in the moment.”