Bill Gross of Janus Capital spoke with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio and Television about today’s jobs numbers, the markets and Fed policy.
When asked whether the Fed will raise rates on September 17th, Gross said: “I still think it’s 50/50 and China and global conditions are the dominant factor. Otherwise, I would have said, yes, I think Fischer and Yellen and maybe even Dudley their fingers are itching.”
Bill Gross on What the Jobs Report Means for the Fed
TOM KEENE: Joining us now, Bill Gross of Janus Capital. Bill, good morning.
BILL GROSS: Hi, Tom. Nice to see you.
KEENE: I thought your note with Janus the other day was really dead on about the soup that we are in. Distill for us what matters right now to Janet Yellen.
BILL GROSS: Well, I think what matters most to Janet Yellen are financial conditions, although she wouldn’t place it number one in a press conference. I think she thinks that growth is fine, that unemployment is pressing limits, and inflation ultimately will move to two percent.
And so what she is concerned about are imbalances in financial conditions. That means stock prices. That means yield spreads. That means money moving into various asset classes that suggest some type of potential bubble. And so financial conditions are the key for her Fed, and perhaps the fed of the BOE (ph).
MICHAEL MCKEE: Well, what do you think at this moment from Bill Gross’ perspective about financial conditions?
BILL GROSS: Well, I have the same sense. It’s hard to call the end of a bull market or to speak to bubbles such as the dot.com bubble or any other period of time. But there certainly is speculative fervor in markets and a lack of liquidity. I mean you can’t leave for the bathroom and come back without the market having moved by one percent up or down.
And that, to me, indicates that markets are certainly not stable or steady. They may not be overpriced necessarily, but they are volatile –
BILL GROSS: – and the volatility itself is something that they want to zero in on.
KEENE: If we assume, Bill Gross, that everyone, including you has Fed exhaustion over the linkage of our economic policy to micro analysis of the jobs report, let’s pass out the blame right now. It’s Friday. It’s blame Friday.
Who do you blame for the silliness that we’ve boxed ourselves into?
BILL GROSS: Well, I blame some fundamental forces and factors and analysis, the slowdown in China. I blame the uncertainty in terms of what the Fed is going to do and when they’re going to go, and by how much.
Ultimately, I guess I blame leverage and debt and these models, some of which are levered and dependent upon what we call “VAR” – value at risk. Actually, Tom, that’s been around for a long, long time. That’s not a new deal.
But the thing is when a market moves significantly in one direction of another, the value at risk changes because of that volatility and it induces more selling or more buying.
BILL GROSS: And that sort of feeds on itself.
KEENE: That’s a nice summary from Bill Gross at Janus Capital. But, Bill, I look at what you mentioned about China and just the VAR we saw overnight from Brazil, China, the Hong Kong PMI. We know those are things Stanley Fischer pays attention to. Will that matter September 17th?
BILL GROSS: Oh, I think it should. I think any central banker, and certainly those at the IMF and other global agencies are well aware that there are significant imbalances in the global economy.
And that speaks to not only trade balances, but it speaks to financial markets. It speaks to currencies. The Brazilian real that you just mentioned is still on a real basis highly overvalued and one would suggest has further to go.
These conditions exist in Asia in terms of their currency levels. Investors are being concerned by the draining of reserves of these countries, China included, tend to support their currencies and how long, and that could continue.
BILL GROSS: And so, yes, imbalances everywhere, and the imbalances are an afterthought or an aftermath of the Great Recession.
KEENE: Right. Well, Bill, you’re unconstrained. Can I make some news this morning? What are you doing on Brazil?
Are you out of Brazil? Do you short Brazil? Or is there an opportunity here?
BILL GROSS: Well, I’m not in Brazil, but yes, it’s enticing. You can invest in the currency and earn 14.5 percent overnight or over a week or over a month.
KEENE: That’s better than Mike McKee does.
BILL GROSS: It is. The question is on an annualized basis, does the currency depreciate by 14.5 percent. So far it’s been doing that, so pick your poison.
But, yes, some of these countries – my favorite emerging market country, the strongest one, in my opinion, and I don’t even think it’s an emerging market country any more, is Mexico. It has got half the debt of the United States.
BILL GROSS: It still has two percent growth. Inflation is under three percent. It has got the cast of emerging markets. And so when risk off appears on your screens, then Mexico won’t do well.
But I think there are some emerging market countries that can do well. And, by the way, just to point out, Mexico’s forward yield curve going forward is, in the next two years, perhaps 300 basis points higher in terms of the future increase than in the United States. So I think it’s really over extended and ultimately is of value.
MCKEE: All right. I’ve just got a minute left. We’ll ask you the money question when we come back. But in the meantime, all the things you mentioned, if the Fed moves, if the Fed doesn’t move, does it affect those things? Or are we just going to be talking about this volatility ad infinitum until they do?
BILL GROSS: Yes, well, it depends on how they move. How many times have I said that, you heard that? It depends on the press conference in September where the plan is supposedly laid out.
They don’t want to make it conditional, but yet they in fact know that they have to make it somewhat conditional in order to dampen volatility. And so we’ll listen to Yellen then very closely.
BILL GROSS: I think they are one and done for six months. I think that’s all they can do. And if any other language pops up, then you’re going to see more volatility.
KEENE: We’re not one and done with Bill Gross. We’ll come back with Mr. Gross of Janus Capital and look at the enticing opportunities that he sees as the markets gyrate.
KEENE: It is jobs day with a market reaction. Michael McKee, you thought Bill Gross snuck in something there at the end of our conversation that deserved a further round of beating him to death.
MCKEE: Well, we wouldn’t call it beating him to death. We could bring up the 49ers if we wanted to do that.
Bill is with us on the T-Mobile phone line. T-Mobile at work, switch your business to