(Bloomberg) Bill Gross, long one of the most vocal critics of post-crisis stimulus, now sounds like a near-convert to modern monetary theory. He says deflation poses a huge challenge for central banks, admires what Japan has done to revive its moribund economy and thinks the U.S. government should consider doubling the size of its deficit.
And the billionaire and registered Republican agrees with Democratic Rep. Alexandria Ocasio-Cortez that the rich should pay more in taxes -- if not quite the 70 percent she’s proposing at the margin. It’s a “necessary evil” to correct the failings of American capitalism, Gross says, adding that if inequality persists there’ll be a “revolution at the ballot box.”
He even muses on who might inherit his onetime title of king of the bond market.
Last Day
Gross, 74, shared the revelations in a 90-minute interview with Bloomberg Television at his office in Newport Beach, California. He touched on everything from recession risks to a recent round of golf with discount-brokerage pioneer Chuck Schwab as he counted down the hours to his official retirement. Friday will be his last as a portfolio manager with Janus Henderson Group Plc, the firm he joined in 2014.
It’s been 48 years since William Hunt Gross, an Ohio native, Duke University graduate, Navy veteran and blackjack whiz, started as an investment analyst at Pacific Mutual Life. He went on to co-found Pacific Investment Management Co. in 1974 and played the starring role as Pimco grew to become one of the world’s largest asset managers, overseeing more than $2 trillion at its peak. His Pimco Total Return Fund so reliably beat its bond-market rivals that he was dubbed “the bond king.”
More recently, Gross has had less to celebrate. After feuding with his Pimco partners over strategy, succession and managerial control, Gross was ousted in 2014. His second act at Janus was a headline-making dud as poor returns spurred withdrawals. His three-decade marriage fell apart in a split so acrimonious it became fodder for tabloids thousands of miles away.
Deficit Critic
As a bond-market investor, Gross had to have views on monetary and fiscal policy, and he shared them publicly in the investment outlooks he posted regularly on Pimco’s website and, later, on Janus’s. One consistent thread was a critique of budget deficits, zero percent interest rates and quantitative easing. He wrongly predicted they’d spark runaway inflation and hurt returns on stocks and bonds.
Now, Gross appears to be revisiting those views. Although he still believes low-rate policies destroy the risk-reward relationship in a market economy, he recognizes that the government and the Federal Reserve can work together to combat deflationary forces like America’s aging population and Amazon.com.
“Why can’t the government have a $2 trillion deficit if the Fed is simply going to buy it, like they do in Japan?” Gross said. “Well, Jim Grant would say, ‘Mmm, it would be inflationary.’ But it hasn’t been. So, yeah, I would say Trump or the next president, whoever he or she is, could go to $2 trillion, as long as the Fed was willing to accommodate.”
Restoring Balance
This clearly isn’t the Bill Gross of 2012, who declared the “cult of equity” dead and predicted an “age of inflation.” He describes his politics as increasingly liberal, and he jokes that he re-registered as a Republican just to pass muster at his country club.
Gross believes tax rates on high earners need to be raised to restore balance in American capitalism and fund benefits for the middle class, such as access to affordable health care. That’s why he’s sympathetic to Ocasio-Cortez, the congressional freshman who has energized the left wing of the Democratic Party, even if he doesn’t agree with all her ideas.
“Maybe the next time, the next election, there will be a ‘socialist’ in the White House,” he said. “The wealthy have been advantaged for a long time and certainly the past few years with the tax cuts. The middle class hasn’t necessarily suffered, but the gap has increased.”
Differing Billionaires
The question is how heavy the tax burden should be. Other billionaires, such as Oaktree Capital Group LLC’s Howard Marks, have warned against the consequences of “confiscatory taxes.” Gross says a top marginal rate of 70 percent -- the number floated by Ocasio-Cortez -- would be too high.
“I just think Trump took it too far,” he said.
Gross himself has a fortune the Bloomberg Billionaires Index estimates at $1.4 billion. He plans to manage that money and the $500 million in his foundation as a one-man family office. Gross said he’ll do so “conservatively,” investing in closed-end funds and municipal bonds and continuing with one of his favorite trades, selling options on market volatility.
New Routine
His routine, if all goes according to plan, will have him starting at 6:30 or 7 a.m., keeping at it for two or three hours, and then playing a round of golf.
Gross said he wants to be remembered for investing clients’ savings profitably and helping to build a “wealth-creating machine” at Pimco. That leaves only one question: Will there be another bond market king?
Probably not, according to Gross. One reason is the proliferation of passive investment vehicles. Anyone who claims to be a king of index funds is “just a puppet because the market is making the decisions.” Gross volunteered that he wouldn’t pick Jeffrey Gundlach, the chief executive officer and co-founder of DoubleLine Capital who’s frequently cited as the new king.
If anyone, he said it might be Scott Minerd, the chief investment officer at Guggenheim Partners, in part because of his “great long-term perspective.”
Bill Gross discusses whether there will be another bond market king, and why, if any, it would be Scott Minerd.
“In the right environment, 20 years ago, he could have been a bond king,” Gross said. “But I don’t think he’s got the market or maybe the willingness to be a king. Who would? Well, I guess I did. In retrospect it carries a certain burden. The crown is heavy.”
