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Bill Gross: ‘The Fed Knows Nothing’ – Exclusive Interview With the Bond King

Published 11/12/2022, 05:00 AM
Updated 07/11/2023, 03:20 AM
  • Bill Gross, a.k.a the “bond king,” says the Fed “knows nothing” in an exclusive interview with
  • The central bank’s inflated balance sheet means a Volcker moment won’t work
  • As we enter a new era for the global economy, cash looks more attractive

Legendary investor Bill Gross isn’t pulling any punches. In his latest letter to the public, the superstar fund manager and co-founder of Pacific Investment Management Company (PIMCO) painted a rather challenging picture of the U.S. (and global) economy going forward.

According to Mr. Gross, Jerome Powell has been deploying the same tactics as Paul Volcker in the late 1970s and early 1980s, but without taking into consideration the fact the economy is much more leveraged now. As he explains, if the Fed’s rate hikes stop at 4.5%, we can still see only a ‘mild recession’; however, anything above 5% would lead to a severe global recession.

“Recent events in the U.K., cracks in the Chinese property-based economy, war and a natural gas freeze in Europe, and a super strong dollar accelerating inflation in emerging market economies, point to the conclusion that today’s 2022 global economy in no way resembles Volcker’s in 1979."

S&P 500 Forward P/E Vs. 10-Year U.S. TIPS Yield Daily Chart

Source: Yardeni Research

Bill Gross revolutionized the investment world by creating the first investable market for fixed-income securities and made a fortune by beating the market for decades in a row by trading bonds. However, late last year, he turned on the very asset that made him “bond king,” calling U.S. Treasuries “garbage.” Needless to say, he was right, as bonds went on to one of their worst selloffs in history.

In an exclusive interview for early this week, the legendary investor was blunt to say cash is the best investment at the moment, as the Fed has “already gone too far.” In his direct style, Mr. Gross also noted that investors must recognize the new era for the global economy may be brewing and invest accordingly. You recently stated that the U.S. economy could withstand a 4.5% interest rate with only a ‘mild recession'; however, 5% would be the breaking point. Why do you draw the line at that particular point?

Bill Gross: Real federal funds markets are at an approximate 2% rate, a level that, in prior economic cycles, has induced future recessions. In this cycle, financial and economic leverage is much higher than witnessed prior to the Great Recession, which argues for an even lower yield, implying the Fed has already gone too far.

IC: We are already very near your cited breaking point—especially if the Fed raises rates by the expected 50bps at its December meeting. Do you think Powell doesn’t share the same thoughts as you do?

BG: The Fed, as Jim Cramer once said, “knows nothing.” Can anyone doubt that based upon the past few years’ experience of 0% yields, incessant quantitate easing (QE), and the expansion of its balance sheet from $1 trillion to $8.7 trillion?

Fed's Balance Sheet

Source: Wolf Street

IC: Does the Fed think the U.S. economy actually needs a ‘mild recession’ to be more economically efficient in the long run?

BG: Yes – it needs a recession to increase unemployment and lower wage gains.

IC: Do you think U.S. bonds are oversold?

BG: Hard to say an “oversold” bond market. A crisis such as witnessed with crypto or potentially with the Japanese yen devaluing would turn things quickly.Effective Fed Funds Rate Vs. 2-Year Treasury Yield

Source: Fed

IC: Is this a better time to buy stocks or bonds? Or neither?

BG: Cash!

IC: Are we entering a new era for the global economy? Or are we facing just a temporary headwind?

BG: A new era. We are deglobalizing, and equity investors recognize future headwinds associated with global warming, geopolitical conflicts, and aging demographics.

Disclosure: Thomas Monteiro does not own U.S. government bonds.

Latest comments

The stock market is based on the CRIME of the ILLEGAL and UNLAWFUL dollar according to Article 1, Section 10 of the US Constitution. Go ahead, invest in crime.
The day Bernanke started QE marked the beginning of the end. EOS
I care a *******about the critics here, Tom. This is one great interview, that's all I can say, mate! Bests - B
Hi Barani! It's good to see you here, mate--and thanks a lot for the compliment! Well, Bill is a divisive figure, and that's part of what makes him who he is.  I believe he gave us some very interesting clues as to where the U.S. (and global) economy may be heading both in the short and long term. Still, in markets--as in life--no one can predict the future. So, I'm happy to share his ideas, even if that might spark some controversy--perhaps even better if it does.  Thanks for the comment. Really appreciate it!
Bill Gross was not right for 10 years at least- He was fighting the fed and lost - He lost his company- pimco- that’s how wrong he was . Listening to him now would be dangerous. He said to be in cash - why not *******deep in gold or silver? Both up 10% last 60 days. Or that rally in the s and p - he is full of **** Go for a walk on the beach Bill- Or better yet just retire and fade away
I think its not about that he was wrong at some time. Bill shareed lots of good information and not its up to you what you make out of it. What Fed is doing and what is happening in global market is not hidden to any one.
you are talking only past 2 months, not looking at broader picture. Gross is talking macroeconomic. Gold and silver are down , looking past 2 years
Here's an interesting article about between Powell vs. Volcker, which is aligned to what Bill said:   Great insights. I totally recommend reading "carry on" (his latest post, which you can find here: Thanks,, carry on!
Thanks for sharing the article with us, Alvin. Very insightful.
Bill Gross like all the so called GURUS of investing has a track record that couldn't beat the long term averages of placing your money in the SPX. They all have one thing in common, extreme BIAS based on what their particular investment vehicle is.  40 year disinflation cycle is just that, a cycle. inevitable it seems.  Insidious inflation after a generation weened on easy and cheap loans, house that appreciates well above inflation, and a sense that all risky investments are needed to bet the averages.  Invincibility!  This is about to change. like the political landscape where fascism is fashionable and scapegoating a lost art.  We are entering the destructive phase. Things will get nasty and for decades to come.  Buckle up!
30 year rates broke their long-term down trend...since the 70's. The dollar just broke it's long-term uptrend and gold is sprinting up the last few day's. Inflation is only taking a pause. Things could get really ugly for the economy.
The Fed can only control demand and not supply. So the ones controling supply are controling the econmy. Time to do something about this I think. Else they can hike whatever they want with little result. We should not end up with a high unemployment rate while still having high costs of living. That would be bad
Bill Gross is like a broken clock, right twice a day.
Agree to some what. Using a play book of 1970 in 2022 with too many extra player; does seems fed being inivative. Bottom line Fed cant control the supply so lets chock the demand by taking their job, house & finally everything so they have nothing to buy food.
Don't think this rally is the end...We have not hit bottom yet!
Sometimes you need to burn it all to start over, the real economy has been dead since 2008
I believe that’s why Bill says rates can’t get too high. Too much leverage and debt in the system. Buning everything down would likely cause severe pain across the world for many years. Thanks for the comment.
you are 😘
BG is shorting the MK and getting angry it wont go down more lol
hoping these difficulties lead to a stronger economy in the future
Interesting article.
Of course since fed makes all you lost this year
We’re certainly entering a new economic era, as much as a new geopolitical one, coupled to the former. Great insights.
Tough times ahead. The comment that we are facing a new era of the global economy is a point I agree should be considered, especially due to aging demographics. Great stuff!
Yeah, I agree that may be the most insightful remark of the interview. Thanks for sharing your thoughts.
Cash is king! Markets are more optimistic about inflation, but I think there is going to be more pain in stock markets.
There will be more pain, whoever think this rally is because we hit bottom is nuts, get ready for the downturn
Yes, I think that’s the bottom line. Thanks for the comment!
When Bill talks, smart money listens to him! Thanks for the insight
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