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00:00KEENE HERE. TODAY, WE HAVE JIM GLASS. AND HAVE ALAN KRUEGER. MR. GROSS, FIRST OF ALL, CONGRATULATIONS ON THE PHILANTHROPY OF SELLING THE SWISS STAMP COLLECTION. WHY DID YOU SELL YOUR STAMP COLLECTION? BILL: IT WAS TO FRANK. WELL, I HAVE BEEN SELLING IT FOR NINE YEARS. ONCE YOU FILL IN ALL THE SPACES, IT'S TIME TO MOVE ON. I HAVE BEEN LETTING IT GO FOR CHARITY. TOM: DID YOU SELL THE STAMP WITH THE UPSIDE DOWN AIRPLANE? TOM: NEVER. I WOULD NEVER SELL THE INVERTED JENNY. MARK: DID YOU HAVE THAT REACTION TO THE JOBS NUMBERS WE WERE TALKING TO JIM ABOUT? THE MARKET WILL DECIDE ON JUNE. TOM: FOR THE LAST THREE MINUTES, THE MARKET HAS DECIDED THAT JIM IS OUT. THE FED, HAS A GLOBAL CENTRAL BANK. THEY ARE FIXATED ON STOCK PRICES. THEY ARE MOVING INTO THE EXTENT THAT THE STOCK MARKET HOME, I AM NOT SURE THAT JUNE IS OUT. WE HAD THAT FROM STAN FISHER. WE ARE WITH WILLIAMS AT SAN FRANCISCO. THEY ALL SEEM TO GET IT. THEY KNOW THAT SOME POINT, THEY ARE RAISING INTEREST RATES. WE HAVE SOME MOVEMENTS OF PROFITABILITY AND INSURANCE COMPANIES. TOM: IN YOUR MOST RECENT ECONOMIC LETTER, YOU SAID YOU WILL SEE QE4. YOU ARE NOT CONVINCED THAT THEY WILL BE RAISING RATES. BILL: I THINK THEY SHOULD, AND ORDER TO GIVE A BREAK AT THE BANK. BUT, AT THE SAME TIME, I THINK THE FED HAS TO SUPPORT THE LONG BOND MARKET. THIS HAS TO BE A VERY DELICATE PROCESS. THERE CANNOT BE A LOT OF VOLATILITY. I THINK THAT QE HAS TO COME BACK AT SOME POINT, IF ONLY TO PROVIDE FUNDS FOR FISCAL SPENDING. WHEN WE ARE TALKING ABOUT HELICOPTER MINING IN MILTON FRIEDMAN, AND BEN BERNANKE DROPPING CASH FROM HELICOPTERS, WHAT THEY'RE REALLY TALKING ABOUT IS THAT THIS SPENDING IS BEING PAID FOR. IT IS NOT VERY EASILY DONE. IT IS MORE EASILY DONE THAT IN THE PRIVATE MARKET. TOM: WE NEED TO MENTION THE MARKETS RIGHT HERE. THE TWO YEAR YIELD HAS MOVED DRAMATICALLY. I JUST PUT OUT ON TWITTER AND ON BLOOMBERG RADIO PLUS THAT THE TWO-YEAR CHART IS WELL OVER STANDARD DEVIATIONS OF A LOWER YIELD THAN THE TREND THAT THE FED HAS SEEN FOR A GOOD 18 MONTHS. DAVID: YOU DO SEE THESE KNEE-JERK REACTIONS. IS .68% PRICED CORRECTLY FOR THE TWO YEAR YIELD, OR WILL IT COME BACK? BILL: I THINK .6 END OF THE RANGE. IT WILL GO THAT WAY FOR THE LAST 6-12 MONTH. AND, IF IT DOES INCREASE THROUGH JUNE, YOU'RE TALKING ABOUT A FEDERAL FUNDS LEVEL. SO, I DO NOT THINK IT IS APPROPRIATELY PRICED. WITH WHAT THE FED HAS DONE, THEY SUGGEST THEY ARE DATA INDEPENDENT. THIS IS THE DATA THEY HAVE USED TO SUPPORT A LACK OF A HIKE. WE ARE ALSO SEEING WAGES MOVE UP BY .3%. I THINK YELLING, MORE THAN JOBS IS FOCUSED ON WAGES. TOM: LET ME BRING IN THE DISCUSSION OF HELICOPTER MONEY. BEN BERNANKE TALKED ABOUT INFLATION IN JAPAN OVER 10 YEARS AGO. OLIVIER TALKED ABOUT THE BOND CHART OVER SIX YEARS AGO. WHY IS BILL GROSS TALKING ABOUT INFLATION? WHY IS THIS SO HARD GET GO -- HARD? BILL: MORE THAN ANYWHERE ELSE IN THE WORLD, ASIDE FROM TYPE ONE, WE DO NOT HAVE THE SAME AGE PROBLEM WHICH LEADS TO LESS DEMAND GOING FORWARD. SO, JAPAN IS NOT A TYPICAL PETRI DISH. WHAT IS NECESSARY IN THE UNITED STATES IS FISCAL SPENDING. TO BE FAIR, THE FED TALK ABOUT FISCAL SPENDING. YOU KNOW, WITH RESPECT TO THE CONGRESSMAN, I THINK WE NEED TO SPEND MONEY, BUT WE TRY TO FIGURE OUT HOW TO ELECT A PRESIDENT GOING FORWARD. INFRASTRUCTURE, HEALTH CARE, AND SPENDING ON A UNIVERSAL BASIC INCOME WHICH IS 5-10 YEARS IN THE FUTURE. IN ORDER TO SUPPORT AN INCREASING JOBLESS ELEMENT IN U.S. SOCIETY. TOM: WE ARE SEEING A REACTION TO THE DOLLAR. IT IS DOWN BY ONE QUARTER OF 1%. THE YEN IS GAINING. THE EURO IS GAINING. ARE YOU CONCERNED ABOUT THE U.S. IMPACT ON THE REST OF THE WORLD? MARKETS IMPACT THE REST OF THE WORLD. THE CENTRAL BANK HAS NOT DONE ANYTHING YET. IT IS IMPACTING EVERYONE'S ECONOMY. BILL: YES, IT DOES, AND CURRENCIES ARCTIC MOVER IN THE UNITED STATES. IT IS PART OF A HEDGE FUND PORTFOLIO. THAT IS TO THE EXTENT THAT HEDGE FUNDS ARE ON THE WRONG SIDE OF THE RIGHT LIGHT OF THE MOVEMENT AND CURRENCY. THEN, THEY JUST OTHER METRICS SUCH AS BOND DURATION OR RISK EQUITY. ONCE YOU GET SOMETHING MOVING IN A HIGH LEVERAGE MARKET, YOU SEE MOVEMENT AND OTHER ASPECTS, EVEN THOUGH, THE JOBS REPORT SEEMS TO BE A DIVERGENCE THAN WHAT WAS EXPECTED, BUT NOT VERY SIGNIFICANT. TOM: HOW WILL YOU ADJUST YOUR BOND PORTFOLIO OFF OF WHAT WE OBSERVED TODAY? AND COME OFF OF THE LETHARGY OF THE AMERICAN ECONOMY WE HAVE SEEN IN THE DATA OVER THE LAST X MONTHS? BILL: WOULD YOU HAVE TO DO IS RECOGNIZE THAT THE FED AND OTHER CENTRAL BANKS WILL STAY LOW FOR A LONG TIME. WE HAVE STANDARD DEVIATION ON A TRADITIONAL DAY FOR THE TWO-YEAR. WOULD IT DOES MEAN IS THAT TOM: WE ARE LOOKING AT THE KNOCK-DOWN EFFECTS OF THIS CHALLENGE. THOUGH, I SPOKE AT LENGTH WITH BLOOMBERG. WHAT A WONDERFUL EVENT. OF COURSE, HE WAS PLAYED BY STEVE CARELL AND THE BIG SHORT. HE WAS ADAMANT THAT YOU ARE SUPPORTING OF LOWER FOR LONGER. IF BOND PRICES GO UP AND UP, HSBC IS SUGGESTING A 1.50% FULL CREDIT 10 YEAR YIELD. HOW DO YOU POSITION YOURSELF WITH THE NEW REALIZATION OF LOWER FOR LONGER? BILL: IT IS NOT THAT COMPLICATED. IF YOU TAKE THE POSITION OF 1.5% ON THE 10 YEAR, WHICH IS SOMETHING I WILL DO FOR THE NEXT 6-12 MONTHS, THEN, WOULD YOU REALIZE IS THAT THERE IS NOT MUCH OF A CAPITAL GAIN IN THE 10 YEAR. BUT, THERE CAN BE A SUBSTANTIAL YIELD. YOU CAN POSITION YOURSELF IN TERMS OF SELLING THAT RANGE. WE HAVE THE CALL IN OPTIONS GOING UP 6-7%. IT IS COMPLICATED. BUT, IT IS A KEY POSITION AND A KEY TENET FOR INVESTORS. THEY WILL GO TO THE NEXT SEVERAL YEARS AT LEAST. THE CENTRAL BANKS MAINTAIN A RELATIVELY TIGHT RANGE IN TERMS OF YIELDS. THEY GO THROUGH THAT NOT BY BUYING BONDS. WE SELL THE VOLATILITY AROUND IT. WE GO THROUGH THAT WITH THE RISK OF COURSE. IT IS 101%. IT IS NOT A GOOD STRATEGY. WE GO THROUGH THAT UNCONSTRAINED. TOM: WE ARE LOOKING AT THE TIPS YIELDS, DON'T QUITE A LITTLE BIT. WE ARE AT NINE BASIS POINTS. IT IS UP .6%. THE BOND MARKET HAS NO INFLATION OUT THERE. EVEN THOUGH WE ARE AT 2.5% FOR YOUR OVER YOUR RAGES. BILL: WE WILL GO UP 1.6 IT IS INCREDIBLE. WE'RE DOWN 1.6 THAT IS IN FROM JANET YELLEN AND THE COMPANY WANT. HERE EXPRESSING AN INABILITY FOR THESE RATES GOING FORWARD. WE HAVE THE FISCAL POLICY DONE IN BY THE HELICOPTER ONE. LET ME EXPLAIN HELICOPTER MONEY FOR SECOND. THE PRIOR QE, WE HAVE TREASURIES AND MORTGAGES. ALL WE DO IS THAT WE TAKE THE INTEREST AND GO BACK TO THE GOVERNMENT. WE GO THROUGH THAT AS LONG AS THIS PONZI SCHEME KEEPS GOING. I THINK IT WILL. IT IS NOT A BURDEN IN TERMS OF DEBT TO THE BOND MARKET, IT IS DEBT IN TERMS OF THE FED. THE FED AND THE TREASURY ARE BECOMING CONJOINED IN TERMS OF FISCAL OR MONETARY POLICY. THAT IS UNLESS THEY HAVE INDEPENDENCE. GOING FORWARD, WILL HAVE TO PUT UP WITH THE COMBINATION OF FISCAL AND MONETARY POLICY THAT WE SEE IN JAPAN. WE'LL SEE MORE OF THAT THROUGH THE UNITED STATES. TOM: COULD THAT BE SOLD TO THE BOND MARKET WITHOUT A VOLATILE REACTION? THE FED IS MOVING SHORT-TERM RATES UP TO PROVIDE SOME SEMBLANCE OF THE MONEY SAVERS. THE SHORT-TERM PORTION OF THE YIELD CURVE, IF THEY COULD COMBINE TENS AND 30'S WITH A QUANTITATIVE EFFECT, WE HAVE THE VOLATILITY GOING FORWARD. IS APPLIED TO FISCAL POLICY. WE CAN GET THE ECONOMY GOING AGAIN. ONE OF THE AMAZING THINGS IS THAT WE ARE ALL CHANGING NOW. YOU KNOW, BASICALLY, THE SUPPLY REMAINS MOVING FORWARD. THE POLICY NEWS GOES BACK AND BECOMES DEMAND-SIDE POLICY BECAUSE THE AGGREGATE DEMAND ON THE GLOBAL BASIS IS LACKING AND, MOST GOVERNMENTS HAVE NOT FIGURED THAT OUT YET. TOM: YOU HAVE DONE A GREAT JOB OF BRINGING IT INTO THE ECONOMY. WE HAVE THE MOLDING ECONOMY. ONE OF THE OUTCOMES OF THAT IS THE NEGATIVE INTEREST RATE. WHAT DO YOU KNOW ABOUT THE USE AND EFFICACY OF THE INTEREST RATES FOR THE LAST FEW TIMES." -- TIMES? WE ARE MOVING IN THE EURO-DOLLAR. HOW DO NEGATIVE RATES PLAY OUT? BILL: THEY HAVE BEEN PLAYING OUT. NOT ONLY WITH BANKING, BUT ALSO AS PENSION FUNDS. WE HAVE THESE SITUATIONS IN PUERTO RICO AND DETROIT, WE BLAME THOSE ON INDIVIDUAL ACCESS IN TERMS OF SPENDING, BUT, BASICALLY, ALL SAVERS AND PENSION FUNDS IN THE UNITED STATES ARE IN A SITUATION WHERE, IF THEY CANNOT EARN 6-7%, THEY CANNOT GET A POSITIVE RETURN ON BONDS, THEN, THEY BECOME MORE UNFUNDED AND THEY DIG A DEEPER AND DEEPER HOLE. NEGATIVE INTEREST RATES ARE NOT THE WAY TO GO. THEY ARE A HUGE DISASTER. THEY DO NOT HELP ECONOMIES. TOM: WHAT ARE YOU LOOKING TO IN ORDER TO PULL US AWAY FROM A NEGATIVE INTEREST RATE POLICY PRESCRIPTION. WHAT ACTION ARE YOU LOOKING FOR OUR SAY OK, WE'RE DONE WITH THAT MODEL? BILL: CENTRAL BANKS SHOULD GIVE UP ON THE PHELPS CURVE. IT POSITS A 2% REAL RATE OF INTEREST. THEY SHOULD START MOVING TOWARDS THAT IS OPPOSED TO MOVING IN THE OPPOSITE DIRECTION. AT THE SAME TIME, YES, IN ORDER TO PREVENT A DOWNDRAFT IN THE EQUITY MARKET AND LONG-TERM BOND MARKET, WE SHOULD SUPPORT THE PHASE. TO ME, MONETARY POLICIES HAVE TO REVERSE THIS COURSE. FISCAL POLICY HAS TO GET OFF OF THE DYING. WE HAVE TO START SPENDING SOME MONEY FOR JOBS, FOR INFRASTRUCTURE, FOR HEALTH CARE. THERE ARE TRILLIONS OF DOLLARS

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Bill Gross on Jobs Report, Fed Rate Path, and Stamps

Bill Gross, fund manager at Janus Capital, examines the April jobs report, the Federal Reserve's rate hike path, his bond portfolio strategy in reaction to the data, and discusses the sale of a portion of his stamp collection for charity. He speaks on "Bloomberg ‹GO›." (Source: Bloomberg)

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