Bill Gross of Janus Capital was interviewed by Erik Schatzker on Bloomberg Markets this morning.
Gross discussed market reaction to the U.S. presidential election, telling Schatzker that Trump’s victory won’t lead to more economic growth.
SCHATZKER: “Well, let’s consider those things for a moment. Let’s consider demographics. Let’s consider some of the structural obstacles. Can you envision a scenario, all of those things considered, in which the economy grows four percent a year, and in which we add 25 million jobs over who knows what period?”
Bill Gross: “No. If that’s the objective or the stated goal of the Trump administration, they are bound to fail. We’re in a period of time not just in the U.S. but globally where growth has stunted, for a number of reasons I just mentioned in terms of structural, and the reason that basically our old economist friend Keynes hasn’t been mentioned in a number of years. It’s all something that relates to infrastructure. If fiscal spending is confined to shovel ready infrastructure, then there’s not much to be had in terms of growth. And so I would still stick to the one to two percent growth rate that the IMF and others are suggesting for the U.S. I don’t think a Trump victory will really do much there in terms of the policies that he’s now advocating.”
Bill Gross: Trump Victory Won’t Lead To More Economic Growth
VONNIE QUINN, BLOOMBERG ANCHOR: For what Donald Trump’s election will mean to the bond market now, let’s turn to Bloomberg’s Erik Schatzker and Janus Capital Fund Manager, Bill Gross, who joins us from Newport Beach, California. Erik, a big shift in the bond market, a rating change, maybe?
ERIK SCHATZKER, BLOOMBERG ANCHOR: We’ll have to see, Vonnie. Let’s put these questions to Bill Gross. Bill, good morning to you. Let me begin with this. What did Bill Gross, American citizen, voter, I presume, investor, philanthropist, think when he saw the results?
Bill Gross, UNCONSTRAINED BOND FUND PORTFOLIO MANAGER, JANUS CAPITAL: Well, I was having a doctor’s appointment, believe it or not, and after I finished, I came out, I was driving home, and was certainly stunned by the reversal of the last hour or two. It just wasn’t expected to happen. I wasn’t stunned necessarily because of the implications going forward. I was stunned by the upset. And we’re just going to have to see what the Trump policies pre-election and the Trump policies post-election are in terms of how they come together.
SCHATZKER: What are the implications going forward? And, Bill, what message is the market sending with prices where they are now? We’ve seen an enormous reversal, as you know, in stocks. Dow futures were off some 800 points at some moments overnight. The dollar was dramatically weaker. Now both are, the dollar, I believe, is a little higher, and stocks are flat.
Bill Gross: Yes. Well there’s two messages, right. The message of the people via the election, and I think that’s a Brexit with a capital B in terms of populism versus globalization. We saw that in the Midwest with Wisconsin and Minnesota and the rust belt states that sort of were neglected before the election by both parties, and so I think that movement’s alive. I also think because of the triple play by Trump and the executive and Congress that they won’t necessarily have a free hand, but they’ve got a hand to implement policies that are corporate friendly.
We’re talking about corporate tax reform and that should favor corporations and profits. It’s hard to believe the specifics of it, but it looks like corporations will benefit, and individuals won’t, but I would say in terms of the policy that the people voted, that there’s unrest and there’s the need to, yes, to stimulate growth in order to increase real wages, but I — I’m still skeptical as to whether Trump or even Hillary could have done that.
SCHATZKER: Bill, with treasuries selling off, the yield curve steepening, that’s what we’ve seen this morning, how’s that affecting your portfolio in the Janus Global Unconstrained Fund?
Bill Gross: Well, Janus Unconstrained had some volatility sales at wide levels for interest rates, and so far, so good. Janus Unconstrained had a risk off type of posture looking for the stock market to go down a little bit and for high yield bonds to widen in terms of spread. That’s happening this morning. So I haven’t seen the specific number, but I think Janus is doing well (technical difficulties). I think that has been risk off and that has been currency negative, dollar positive, I think does well in the circumstance, but we’re going to have to see, as the day and the Thursday and the Friday wind on, because as you say, lots of volatility, and it was up and it was down and perhaps it goes up again in terms of whatever market you’re talking about.
SCHATZKER: Bill, let’s look at both ends of the curve. On the short end, does it make sense to you that that’s firming with the expectation it appears that the Fed is going to have to move more slowly now that Donald Trump is the president? And similarly on the long end, I’m curious to know, how far do 10s and 30s have to sell off before Bill Gross gets interested?
Bill Gross: Yes, lots of good questions there. Well, it depends to some extent on the current Fed Chairman, Janet Yellen. It depends on what happens after Trump is inaugurated in terms of how he views the Fed and whether Yellen is his person, so to speak. But I think Yellen has bluffed so much that given financial market stability or relative stability that they go ahead in December. If not, if markets tank by 5 to 10 percent, then there’s not much chance in my view of short rates going up.
Now in terms of 10s and 30s, yes, the curve is steepening significantly today as you mentioned, on the long end, because of potential deficit spending by the new administration. But I would be cautious there as well because as I’ve mentioned before, it’s a global marketplace in terms of bonds, and there are other central banks. The Japanese central bank basically has pinned (ph) their own 10-year at zero basis points and it’s close to that level now.
Japanese investors can sell their JGBs and buy treasuries at a decent spread currency hedge, now probably around 40 or 45 basis points. If that curve widens, then the 10-year in the U.S. has a lid, so to speak. I think that’s probably around two percent. Anything higher than two percent, it will become so enticing for global investors that they will move into treasuries and out of gilts and out of JGBs and out of German Bunds.
SCHATZKER: Well, we’re pretty close, we’re at almost 1.97 on the 10 and we’re at 2.78 on the 30. Are they cheap enough for you yet, or does Bill Gross wait?
Bill Gross: Well, I want to see how the day ends. Not necessarily