Bill Gross: "Bernanke Might Be Driving In A Fog"

Tyler Durden's picture

The biggest bond fund manager on the planet likely had a bad day today and judging by his comments during the following Bloomberg TV interview, he is not too impressed with the current Fed head, who is "driving in a fog," or the front-runner to fill Ben's shoes, Yellen "is a Siamese twin in terms of policy... [preferring someone] who would emphasize Main Street as well as Wall Street - which has been the emphasis for the past three or four years." The mistake the Fed is making, Gross explains, "is blaming lower growth on fiscal austerity and expects towards the end of the year once that is gone, all of the sudden the economy will be growing at 3%," or more simply the error of their policy-making ways is "to think that is a cyclical as opposed to a structural problem in terms of our economy." The bottom-line is that Gross sees less Taper (due to disinflation) and warns "those who are selling treasuries in anticipation that the Fed will ease out of the market might be disappointed."



Gross on today's statement by Bernanke:

"It was a pro-growth type of statement and a suggestion that some additional definitions in terms of when tapering might begin and when it might end. Obviously according to a 7% unemployment number that speaks in his mind and perhaps my mind to early 2014. But I might also say in terms of questions and answers, and that is critical I think, that he did speak to the conditional influence of inflation. That even if unemployment came down to 7% and inflation did not go up to 2%, they would look around and readjust their decision. This is a combined growth, unemployment and inflation type of combination that has to be delicately managed and I think the market has misinterpreted the growth and the unemployment targets while leaving out the inflation targets going forward."

On what he means by market misinterpretation:

"I think they are missing the influence on inflation that obviously the chairman has considered and perhaps the committee as well. There was a question and Q&A that basically said, Mr. Chairman, if we are down at 1% inflation and it doesn't rise, then real interest rates are in a quandary to which you have limited flexibility, and he said, I agree completely with the premise of your question. I would think the markets are looking at the 7% unemployment rate and suggesting the tapering will end at that point. I would suggest that yes, he did say 7% in terms of an unemployment target where tapering would end, presumably in 2014, but he also qualified significantly a number of times that inflation has to go back up towards that 2% target and at the moment we are not there. Those who are selling treasuries in anticipation that the Fed will ease out of the market might be disappointed unless we have inflation close to 2%."

On how the Fed will respond if we don't get to 2%:

"I think the Chairman is almost deathly afraid and we have witnessed in speeches  going back five or 10 years on the part of the chairman in terms of the helicopter speech and the reference not only to the depression but to the lost decades in Japan. I think he is deathly afraid of deflation. As we meander back and forth around the 1% level, I would suggest that the chairman to the extent that he perhaps has a limited time left in terms of being the Chairman, that he would guide the committee towards not only an unemployment rate which has been emphasized in terms of the Q&A but also towards a higher inflation target, which is really a target. It's not something in terms of a cap, but the inflation target of 2% and for the next year or two, 2.5% has been specifically delineated in terms of that. It's a target. Those who think it is a cap and we are 1% below the cap and therefore the Fed doesn't care about it, I think the chairman told us the Fed does care about it and the closer we get to 2%, the better as far as he's concerned."

On Janet Yellen:

"I think she is a Siamese twin in terms of policy. She is very much a dove and has chaired the communication effort on the part of the Fed for the last few years which has emphasized and will continue to be emphasized. PIMCO does not want to be in a position of endorsing anyone. We would simply endorse a chairman or chairwoman who perhaps would emphasize Main Street as well as Wall Street which has been the emphasis for the past three or four years."

On when he thinks the Fed will start to taper QE and when investors need to start trading on that:

"Based on what he said, based upon what the Fed estimates have given us in the last hour it suggests that yes, towards the end of the year, as we hit 7.25%, and if inflation rises as opposed to stays at 1% that the Fed would begin to taper and that ultimately they would end tapering in perhaps the first quarter of 2014. Is that a realistic possibility? At PIMCO, we don't think that really is. We think the chairman and the Fed are taking a very much of a cyclical type of view.


He blames lower growth on fiscal austerity and expects towards the end of the year once that is gone, all of the sudden the economy will be growing at 3%. He blames housing prices moving up on homeowners that simply like higher home prices as opposed to emphasizing the mortgage rate, which is really what has provided the lift in the first place. To certain extent his driving analogy, which he talked about pulling back on the accelerator, I think he might be driving in a fog. I think the Fed itself may be driving in a fog. To think that is a cyclical as opposed to a structural problem in terms of our economy. I simply think and PIMCO thinks that real growth to lower unemployment below 7% is a long shot over the next 6, 12, 18 months."

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Hohum's picture

Psst, Bill Gross, the machines do not pay for themselves.  Haven't for decades.  You are whistling past the graveyard.

Zer0head's picture

Thanks for the heads up Bill. Now lets watch what you do

flacon's picture

King Zero Hedge Arthur: [after Arthur's cut off both of the Black Knight's arms] Look, you stupid Bastard. You've got no arms left. 

Bernanke Knight: Yes I have. 

King Zero Hedge Arthur: *Look*! 

Bernanke Knight: It's just a flesh wound. 


[the Black Knight continues to threaten Arthur despite getting both his arms and one of his legs cut off] 

Bernanke Knight: Right, I'll do you for that! 

King Zero Hedge Arthur: You'll what? 

Bernanke Knight: Come here! 

King Zero Hedge Arthur: What are you gonna do, bleed on me? 

Bernanke Knight: I'm invincible! 

King Zero Hedge Arthur: ...You're a loony. 

Big Slick's picture

"The biggest bond fund manager on the planet likely had a bad day today..."

You're referring to Ben Bernanke, correct?

stocktivity's picture

Poor Bill - he's either been drinking heavily or just stopped crying.

stocktivity's picture

Here's the Santelli clip you want to watch - "CRICKETS!   CRICKETS"

HardAssets's picture

Would have been much more impressed with Bill if he'd said to the interviewer:  "You know why the Fed was created don't you ?  It was set up by private banksters to rob the hell out of the American people. Theyve done a great job of it over the last 100 years. I don't know if Ben is smart enough to know that. He may believe in all that crap he was taught in the ivory tower, for all I know. He's made so many wrong predictions that he's either a total dope, or a great actor."

DormRoom's picture

After 5 years shouldn't someone ask the Fed members what their original null hypothesis was?   Pretty, f*cking sure their monetary experiment has gone t*ts up.

Fidel Sarcastro's picture

BernanQE is driving in a fog alright - and he's high/drunk on HOPIUM.

The Shootist's picture

So, he's buying Treasuries again from the Sec. of the Debt?

otto skorzeny's picture

How's PTTRX treating you -Billy Boy?

Sutton's picture

Just wait until Ahem makes Maxine Waters Fed Boss

Captain Willard's picture

Both Gross and Gundlach said today that T-bonds were screaming buys at these levels. Neither had anything to say about the convexity risk facing bond managers and hedge funds all over the world. At a minimum one has to admire their sangfroid.

I suspect the road to 2% 10 yr bonds may go through 3% first and then to Palookaville for a lot of fund managers before a final stop in Sphincterville for Jack Lew and Congress as they contemplate much higher debt service bills. It's going to be a long, hot summer.

Pareto's picture

+1.  I took some short term paper positions back in January thinking no way will yields press over 2.25.  Those gains have essentially been erased if you factor in the coupon.  i suddenly feel like i am on the wrong side of the trade - that same attendant sensation of unease when you're gut tells you to get the fuck out.

DeadFred's picture

Maybe you'll luck out. 10 yrs went below support briefly a week ago and popped back above, not much but they did go back up. Below support again after a week, how lucky do you feel? Personally I'd go with the gut.

Pareto's picture

Time to make a call.  Candles are too fucking ugly to ignore. Tx dead.

buzzsaw99's picture

Damn right it's structural. Top heavy and weak kneed.

Cabreado's picture

The most efficient way out of this mess is the one where the Gross's of the world acknowledge more responsibility to exert pressure on the corrupt who retain control.

It is clear that we are destroying ourselves -- what force does Gross think will rise up to save his view and expectations?

Or is it more likely (of course it is) that Gross will go down with the ship, having not a clue what really happened?

Nue's picture

I have nothing againt Gross personally but I hate when Wall street types start talking about Main Street and how much they care about it. It's like a child molester talking about how much they love children.  

syntaxterror's picture

He meant Main Street, Newport Beach. Help a brother out Ben.

Tsunami Wave's picture

Think of the poor surfers, jobless hippies, and collapse of the drug marketplace..  Compound that with an absolute collapse of plastic surgeries, restaurant patrons, and below the lows on high-end luxary car sales... then Newport Beach/Mailbu/luxary zip-code main streets all over America are really fucked.

nbsharma's picture

unfortunately, bill is under a precarious situation considering i read it (here on ZH) that he increased his treasury positions recently, including increasing his duration! while he might be right, i don't think the fed, at any point, as part of their details for unwinding, have every mentioned inflation as a target (i could be wrong, as i am quoting from my memory). if they haven't, bill's attempt to insert inflation as their target for unwinding seems a move to convince his clients and himself.

jcaz's picture

That's OK- Bill can afford to be wrong for six months.....

Kirk2NCC1701's picture

"Bernanke might be in a fog"?  More like "Running a rigged group of casinos".   In memory of James Gandolfini*, remember:


1. The Casino can stay solvent longer than its players.   Eventually, the number comes up even for the Big Players.  Sorry, Big Bill.

2.  Good luck in finding an honest casino.  If you do, you may not be able to take all the chips from one Casino to another.

3.  The Casino chain falls only if they are set up as Dominoes, and a key domino falls.


Play/bet accordingly.  Or STFA (Stay the f**k Away).

* Actor James Gandolfini aka 'Tony Soprano', died today, 6/19/2013.

otto skorzeny's picture

51YO- that's terrible RIP-JG- the last show tv show I ever watched was Sopranos.

Caviar Emptor's picture

Reagan proved that deficits don't matter
Obama proved that debt don't matter (student loan forgiveness, reflating underwater real estate, cash for clunkers, bond bubbles)
Bernanke and fellow central bankers are well on the way to proving that the dollar ( and other fiat currency) doesn't matter either.

Kirk2NCC1701's picture

You may very well be right.  Insofar (a) they do whatever they want to do, and (b) they get to do what they want because we're no longer their Masters but their Serfs.

The Road to Serfdom is now a nice freeway, with Rest Stops and Gas+Food Stops for our cooperation and convenience.

newengland's picture

'...those who are selling treasuries in anticipation that the Fed will ease out of the market might be disappointed...'.

True, Mr. Gross.

However, it is also true that there is a systemic insolvency, globally.

syntaxterror's picture

Sure, I'm gonna broken fucking hearted and disappointed when I unload my 0.013% 1-year bonds.

rekfhardy's picture

It is pretty simple, really. The US cannot AFFORD to meet it's interest charges with "normalised" rates, so (real)rates are being held at the zero bound to fund a bloated government which happens to hold an operating lease on the FED. The "unintended consequence" is the REPO market is running out of "Good Collateral" rapidly as good collateral is housed on the FED's balance sheet, unavailable to REPO,(think China today, "good collateral" is fully utilised or hoarded, and faux collateral, such as fake letters of credit are slowly being exposed, leading to 12% rates on GC!)), and that is DEFLATING the structures necessary to maintain the "shadow" system. The "shadow" is deflating roughly 2x as fast as the FED's "deposit based" system is inflating as a result , and that deflation is dragging non traditional collateral into the REPO system much as one might pawn assets at a pawn shop. Think the gold market today, gold is now "pawn collateral", not stock, much as it was in 2008. Read Izabella Kominska's series on the subject @ FTAlphaville...dh

SDShack's picture

Basically agree with all you said, except that the Fed holds Good Collateral. I don't think all that underwater MBS the Fed has been buying from Investment Banks would be considered Good Collateral by anyone other than Bernake. If Bernake tried to unwind those assets, I seriously doubt he would have many takers at full asset value.

Schmuck Raker's picture

Gross on Bernanke:

"He HAS Clothes! We can ALL see them! Can't you see Bernanke's clothes?!?! They are there for everyone to see! There they are!!! If you don't see them you are BLIND!!!!! They are as plain as day!!!!!!!! THERE!!!!!!!!!RIGHT THERE!!!!!!!!!!!SEEEEEEEE!!!!!!!!!! CLOTHES!!!!!!!!!!!!!! CLOTHES I TELL YOUU!!!!!!!!!!!!!!!LOOOOOOOOKKK!! CLOTHES!!!!!!!!!!!!"


Alright Bill. There's a good lad. Yeah, sure, clothes! We all see them...

DeadFred's picture

Who needs clothes when you are concealed in a fog?

q99x2's picture

I agree. The FED knows it is going to have to double down and is attempting to mitigate the level of future requirements.


venzen's picture

as the contrarians and i have been saying for a long time: it's only a matter of time before the house of cards comes down...

When I first started saying that I still had all my hair, so I take that as a double-confirmative contrarian sign that it's not long now...

devo's picture

Doesn't this guy front-run the Fed for a living?

Which means he gets a phone call from Bernanke at 3 in the morning.

Mr. Hudson's picture

I don't buy any of it. This Grossman guy is letting Bernanke off the hook. Bernanke and his buddies know exactly what they are doing. They know that the Ponzi scheme created by the Federal Reserve is a house of cards that would one day collapse. Bernanke creates $85-$100 billion a month out of thin air on the backs of the American Goyim, and gives this money to his buddies all around the world, and he gives this "theft" a fancy name called "Quantitative Easing".  Bernanke wants out before the house of cards collapses. 

proLiberty's picture

Even Bill Gross appears to be very much conflicted in his own mind due to being steeped in the upside-down inside-out world of Keynes.  All these people confuse money with wealth.  C+I+G = a world view that thinks that when government creates money out of thin air to pay people to dig holes and fill them back up (or better yet, to sit at home an watch them on their big screen) is the path to prosperity. 

No, these all operate to put every person in the grasp of the government into DEBT SERFDOM.  But it is not just the US government and the privately owned Federal Reserve Corporation.  All major countries are doing this to their own citizens. 

This is not going to end well. At All.



esum's picture

How can the economy grow with an incompetent person in the white house vacationing constantly, EPA, DOE, Interior, crony capitalism, Obamacare, executive orders, corrupt DOJ / IRS / State / NSA / FBI / DOD / TSA / Homeland Security / 4 buffoons in the #1 and #2 spot in the CIA heading DNI and State, total lack of a coherent effective  foreign policy, a corrupt congress, open borders, 30 million illegals, printing dollars non-stop,half paying no taxes, funding our enemies while sequestering at home, abandoning our veterans and absolutely no trust in the entire current regime... we are a bananna republic.

Jake88's picture

In the interest of full disclosure Bill does have a stake in this. It benefits his funds greatly if we believe the Fed will not exit soon. In fact his funds will go to hell in a hand basket when the Fed does exit. The Fed is also fearful of the instability they have created and of unforeseen consequences. They would have no reason to talk exit if they had no intentions of exit. Look out folks. Deflationary depression ahead.

Winston Smith 2009's picture

"the error of their policy-making ways is to think that is a cyclical as opposed to a structural problem in terms of our economy."

The problem with their policies in one sentence although I think they damned well know it is structural, but they can't do anything about that without crashing markets and (further) bankrupting nations.