Interview: Bill Gross --- Pimco's Chief Investment Officer and Manager
About the economy, the Fed and where bond yields are headed
>> as the fourth quarter approaches, we're learning what top market watchers anticipate the rest of the year. bill gross is pimco's chief investment officer and manager of the world's biggest bond fund. suzy assaad asked him about the economy, the fed and where bond yields are headed.
>> the 10-year at 4.15 is pretty fully priced in my opinion, suzy. and that emanates from a view that the fed goes to 1.75 and maybe 2%, stops for a period of time based upon a mediocre economy and takes a look from that point forward. with fud funds at 1.75 to 2, the two-year at 2.45, it seems to me the 10-year is fully priced at 4.15 and stands a chance in moving higher in yield and down in price from that point.
>> so the fed goes in september and they go again once more throughout this year?
>> that's debatable. certainly they go in september to 1.75. whether they go to 2 depends on an employment report or so. un, the fed is in the prose of taking back that emergency rate cut that was predicated upon deflationary scare of 2003. and that was a 75-basis. l point cut in two steps from 1.75 down to 1. so officially, if they raise the rate to 1.75, we would be even, so suppose. so 1.75 or 2, depending on the strength of the economy.
>> what about the impact of the election. many said the fed wouldn't move as they didn't want to be seen as influencing elections. we've heard from susan bies over the weekend saying there's no urgency for the fed to act. is this maybe the beginnings that action by them will slow?
>> i think it will slow down. the question, of course, is september. the november meeting occurs after the election so supposedly that politics-free. i think the signals from the fed suggest that september is made in the shade, slam dunk, and so politics aside, we'll wait until november and be on to see exactly what happens from that point forward.
>> what does what you're telling us, what does it reflect in terms of what assumptions are you making about the health of the u.s. economy right now, bill?
>> well, we just had our economics forum last week at pimco. we do that once every three months. we suspect that the u.s. economy is doing ok, which means 2% to 3% growth for the next quarter or so. much depends, of course, on the consumer and on investment spending. we sort of have a sense here that the consumer has one last gasp in terms of mortgage re-fi and ecitization of housing based upon the drop in the last few months in interest rates and yields but from that point forward the consumer is tapped out in terms of debt, low real wages if not negative based upon the c.p.i. and is comes down on whether the handoff from the government in terms of their stimulation to the private sector actually take place. and at the moment it appears like it will be a dropped baton and we're looking at 2% to 3% growth rates which is a growth rate that the fed probably sits on in terms of its fed funds rate.
>> does that mean this is more than a soft patch we're going through?
>> it means it's a soft patch. and an extended soft patch and much depends, again, on that handoff and whether the private sector can take the baton. your previous guest talked about business and investment spending. we have a sense there are better investment opportunities, higher returns on investment overseas in asia and the like and that's one of the reasons why businesses are so afraid, i suppose, to make a commitment. you see the most obvious equipment with microsoft in terms of their high cash balances and dividends, et cetera, referring to give the money back as opposed to invest it and we think that's typical of u.s. corporations so that the investment handoff probably is going to be a shaky one.
>> that was bill gross, pimco's bill gross, speaking with our suzy assaad. we have breaking news from kerr-mcgee, the crude oil producer says it is evacuating 100 workers from the gulf of mexico as hurricane ivan nears. also kerr-mcgee says it's shutting down 17 gulf facilities because of the hurricane and that includes its neptune and red hawk platforms. so once again, kerr-mcgee evacuating 100 workers from the gulf of mexico as a result of the hurricane. p.a.e. capital and two affiliates agreed to pay $50 million to settle s.e.c. allegations that they allowed a hedge fund to makement from trades-to make frequent trades at the expense of other investors. p.e.a. capital is a new york-based firm that manages seven mutual funds. alliance's bond fund unit led by bill gross was not implicated. and the yield of the 10-year note has stayed low. that is our "chart of the day" up next.
