Bill Gross warns that Fed rate hikes will crack US economy

Bill Gross, the influential investor, has warned that although the Federal Reserve started raising interest rates this week, the US Federal Reserve will be unable to follow through on a planned series of further rate hikes as it would “crack the economy”. .

The founder of investment house Pimco told the Financial Times this week he believes inflation is nearing worrying levels but the US Federal Reserve will not be able to introduce higher interest rates to contain it.

“I suspect you can’t get above 2.5 to 3 percent before you crack the economy again,” he said. “We’ve just gotten used to lower and lower interest rates, and anything much higher will destroy the housing market.”

Gross’ concern contrasts with consensus among central bank policymakers and market expectations of a 2.8 percent interest rate by 2023 and calls from St. Louis Fed President James Bullard to hit 3 percent by the end of this year.

Gross has been dubbed the “Bond King” for his decades of successful investing rail against low interest rates for years.

“It destroys the savings function,” he said. “Meme stocks and NFTs [non fungible tokens]all of this nonsense I think grew out of an inability to get a decent return on your 401,000-inch retirement plan.

For the past 18 months, he’s put his personal money on the line, using options to bet against GameStop and AMC, the most well-known meme stocks whose share prices have been inflated by retail enthusiasts.

Though he initially suffered enough losses that he stopped sleeping and closed some of his positions, he says he was vindicated by the rapid decline in both companies’ shares. “Maybe I’m an old fart. . . but overall I’m up maybe $15-20 million.”

Gross also benefited well from a decision to buy partnerships that invest in natural gas pipelines. He openly admits his interest was piqued by their tax structure – dividends are reinvested and not taxed until the interest is sold. Now the position is benefiting from sharply higher energy prices due to the outbreak of the pandemic and the war in Ukraine.

Gross, 77, still gets up early and spends five hours a day at his Bloomberg terminal. But he has given up any thought of another comeback after acrimoniously walked away from Pimco in 2014, went through an ugly divorce in 2018 and made a disastrous attempt to set up a new fund for Janus Henderson.

Discomfort with how he thought he would be portrayed in a new book prompted him to write his book recently own memories. “I wanted to set the record straight,” he said.

The process has forced him to acknowledge his own shortcomings and insecurities. In his final days at Pimco, when he was known to feud with other top executives, “I was overly sensitive and it was disruptive,” he said. “This is probably the best thing I left behind. At 72 you start losing it, and at 77 you lose it even more.”

He attributed his poor investment run at Janus to taking too much risk to beat his old firm, but ruefully admitted the solo move forced him to recognize the value of his former colleagues.

“I missed Pimco’s investment committee,” which met daily, he said. “This was a society of Bond kings and queens. I had a certain responsibility for hiring them and keeping them with the company. But these people are good.”

He now believes that the Bond king’s extravagant image was not only a great marketing tool, attracting customers, but also allowed him to hide his fear 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.”

That’s not to say that Gross has gone completely soft. In recent years he has bitterly argued with a neighbor who objected to a sculpture installed in Gross’s Laguna Beach home. The two have gone to court twice over allegations that Gross played loud music, including the theme from the US TV show Gilligan’s islandto annoy his neighbors.

A weary judge eventually sentenced Gross to five days in prison for contempt of court, but suspended it when he was doing community service preparing meals at a local animal shelter. Gross found the experience slicing carrots and onions “educational” and donated $15,000 to the organization. However, he fears further legal problems because the neighbor has appealed the permits that allowed Gross to keep the sculpture.

Although 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 late 70s or early 80s, it’s like the death zone,” he said. “Just wait for the prostate cancer. But it also allows you to be happier in the moment.” Bill Gross warns that Fed rate hikes will crack US economy

Adam Bradshaw

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