Bill Gross of Pimco told Bloomberg Television's Trish Regan and Adam Johnson on "Street Smart" yesterday that quantitative easing will continue to "at least the end of the year." Bill Gross said that the Federal Reserve knows that its policy has negatives: "There are ultimately and presently negatives to these policies. The chairman recognizes that." He also spoke about returning to the gold standard, which would be "very difficult."
On whether he enjoys Twitter, Bill Gross said, "I take my cup of coffee, one or two cups, and get my brain working, and then something comes to mind that listeners might take advantage of or be respectful of. Do I tweet what is exactly on my mind? In some cases because of the 140 letter limit, it's hard to get across the message. But yes, I enjoy tweeting."
Video and excerpts below:
Bill Gross on whether this is the end of quantitative easing as we know it:
"Not yet. As my tweet indicated, I think it's growth dependent and what type of growth would be necessary to and quantitative easing? Probably something like 3 to 3.5% for a number of quarters and probably something approaching 7%, given the 6.5% unemployment rate. We don't think we are there yet. Obviously yesterday the minutes raised the possibility. There is dissension amongst the participants, the governors, so to speak, but the three primary musketeers, the three musketeers, we call them -- Bernanke, Yellen and Dudley -- are in firm command and we don't think anything is going to happen for at least 10 months."
On whether 3.5% growth will happen in the near future:
"It would feel like it is coming if we did not have fiscal austerity and the pullback in terms of government spending or the potential pullback. Housing and other house related industries are pulling the economy forward, but only probably only at a 2% pace. The Fed has indicated--not for the purposes of quantitative easing specifically--but in terms of their policy rate, raising that 25 basis point policy rate, that they would need at least 6.5% unemployment and perhaps 2.5% or higher inflation for one to two years. We're close to those so quantitative easing, in terms of a trillion dollar package, $85 billion monthly package of treasuries and mortgages, we think it continues until at least the end of the year."
On how to get out of the quantitative easing scenario that we've been in for so long:
"That's very difficult, not just for the Fed, but other for other central banks. at the moment, the bank of japan is about to enter the pool, so to speak, the deep end. The Bank of England as well, perhaps, with carney indicating as much. Is it easy to get out of the deep end once you get into it? It gets difficult, because the market begins expects a constant infusion of liquidity--$85 billion a month into the bond market, which extends out into high-yield and equity credit as we move forward. Once you cut off the check writing and the purse strings, it becomes a problematic question in terms of valuation and the ability of markets, stocks, and bonds to continue on."
On his tweet on 2/20 saying that bond vigilantes are no more and central bankers are the masters of the universe:
"They are trying to let us know that they are vigilant. We saw the minutes yesterday and they were extensive and they meet every other month or more frequently. Are they vigilant? They are in terms of their objectives. what the fed is trying to do is reflate the economy, that means not only produce 2 to 3 to 4% real growth, but a modicum of inflation in combination such so we have a nominal 5% of GDP environment. Are they vigilant in terms of moving towards that goal? Yes. Will they be vigilant in terms of having reached it then pulling back and not disrupting markets? Perhaps not. We'll have to see going forward."
On whether central bankers have been irresponsible:
"I would say this and Bernanke said it as well, that there are negative aspects to these policies. The negative aspects come in various forms, potentially with narrow credit spreads and higher risk in terms of asset prices. They come in terms of market making and liquidity aspects of the market itself, they come, as I have indicated and PIMCO has tried to advance in terms of an argument that low interest rates are a negative influence in terms of savings and therefore eventual investments. There are ultimately and presently negatives to these policies. The chairman recognizes that but what he does recognize going forward is if he can reflate the economy successfully, most of those troubles will go away. We remain able bit skeptical,, but we're just going to have to see."
On why he tweets:
"It doesn't take very long. I take my cup of coffee, one or two cups, and get my brain working, and then something comes to mind that listeners might take advantage of or be respectful of. Do I tweet what is exactly on