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Bill Gross: Bernanke Favoring Banks over Retirees

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Will stocks fall if bond yields rise? Pimco’s Bill Gross offers insight. “Going forward, there is going to be a mild positive correlation — if bond prices go down, stock prices will go down as well,” he explains. Note though… that Bill Gross does not always say as he does.

Bill Gross: Bernanke Favoring Banks over Retirees


Bill Gross CNBC Interview Video and Computer Transcript

all good questions you have thrown out there. we call the top story the lead and the lead today is the question. the question that everybody is asking is simple. if bond yields continue to rise, will stocks fall. the green is the ten year treasury bowl. stock markets have been all over the place. in the last middle ten years. so the question again, if bond yields rise more than they are now, let us ask someone who should know. that is bill gross. it is a simple question that is roughly valued at a trillion dollars. what say you? what’s going to happen? let me answer it by going to your chart, brian. what your chart really shows is the history of inflation. double digit inflation in the early 80s. right now central banks are responding with excessive ease. to answer your question on the chart, the normal bond yield for the next few years should be the yield that existed for 100 years until the mid 1970s, somewhere between 2 and 3%. between 2 and 3% that you just highlighted, can stocks still rise? at what point does the yield have to get to to ease into stocks? does that depend on what’s goij on? another good question, we talked about this this morning. yoow, the correlation between stocks and bonds up until 2008, blaming quantitative easing was a negative one where bond prices went down, stock prices went up as a reflection of real growth until the point where it got squeezed. since 2008, with quantitative easing. rick would probably agree with this going forward. a mild positive correlation. it’s simply because the global levered trade, you know, it depends upon a stable japanese yen and a stable jgb yield and a stable treasury yield. okay. so i promised our viewers, bill, a 100-year look on yields. it’s a very simple question. i only look back at 30 years. i could say that today’s rates are abnormally unhistorically low. if we extend the chart out, you could see that maybe 2-5% range is not abnormal. my question in, is this the anomaly? or was 1980 the anomaly? is this sustainable? is today an anomaly on the other side? on the downside? inflation is, perhaps abnormally the bond bull market was over. but yet, and certainly we are seeing that in the past few weeks. we think that treasury yields, the ten-yield as rick mentioned, that there is stability there based upon continued check writing by the federal reserve and by the bank of japan. it’s a big push. is it possible or too much of a stretch to ask is it possible that they are all basically acting now exactly as bernanke hoped? last week he was talking about the tapering and now we’re starting to see the adjustment in the market so that we don’t get a massive dislocation, a bad adjustment when the actual tapering occurs. i think there is something to that. he did in questions and answers suggest that in the next few meetings there was the potential for a tapering if employment continued to improve. president rosengren suggested there there would need to be two or three more months. chairman bernanke does not want a 40 to 50% basisincrease. when you add that to the mix, those two are a dangerous potent combination. i take a different tact and i have a question for you. has he lost control? the bond vigilantes are on the back burner now. you can’t fight the fed. do you think the bond vigilantes will be able to move the market? well, to answer your first point abouing as a matter of fact, they never had it. and to the extent that low interest rates reduce savings and theref consumption. to the extent that they destroyed business models and technically, sort of jam up the repo market, they sort of lost contro i think they are down the list. first of all the fed and the boj and others, they write trillions of treasuries. what a competitive company would do, skinny up the margin. you know, the vigilantes can be vigilant and hopefully they are and will be but it’s up to the central banks in terms of tapering or not tapering. how much is a communication problem? the whole new, it means there are a million voices coming to the point where the market is kind of confused. i think they are. and perhaps as you pointed out, that is part of the plan, so to speak, to confuse investors so that yields gradually move higher. i just think they have confused markets too substantially, so to speak. we are basically operating in unfettered territory in terms of where the fed is going with tapering and where the boj is going in terms of its buying and policy responses going into the next few years. there is a point going forward in the next few weeks and months where banks need to take control and reduce volatility. very quickly, come january next year, who do you think could do a better job than bernanke? bill gross? goodness, no. mohamed? tony — certainly mohamed, but he is well placed in newport beach. i would suggest that bernanke has a chance to succeed himself and there are likely successors. i would like to see a fed chairman that begins to place an emphasis on savings and savers as opposed to wall street and borrowers. any candidate that fulfills that potential would be a good candidate. i think ups is putting a 20% stake.

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