Janus Capital fixed-income expert Bill Gross says he agrees with Federal Reserve Chairwoman Janet Yellen’s take on stock prices, but their similarities end there.
“I have suggested that all asset prices are bubbled,” he said on Bloomberg Radio early Friday. “It’s just a question of whether they continue to be inflated by central bank check-writing.”
Still, Gross added, “It was a little surprising [to hear] from Janet Yellen” about this on Wednesday. “Maybe she got frustrated from [former Fed Chair] Ben Bernanke blogging every other day and taking the spotlight. I don’t know.”
When it comes to how overvalued stock and other asset prices are, the bond specialist said, “It depends on the economy, inflation and the Fed’s ability to generate, in my opinion, 4-5% nominal GDP growth and what the new neutral policy rate will be.”
For Gross, the rate should be 2%, while “the Fed thinks it’s 3 and three-quarters percent. If I am right, then Treasuries can return their coupon without a bear market. If the Fed is right, watch out below.”
The bond expert notes that central bankers have been commenting on asset prices since the financial crisis of 2008-2009.
Central bankers worldwide “believe assets prices, primarily equity prices, are a reflection of potential growth. Wealth trickles down in their opinion … and asset prices are important to the real economy … which has not taken the bait,” he explained. Gross said that this means “investment has not really been a recipient of the trickle down from asset prices in the financial markets. Therein lies the conundrum.”
His conclusion? Central bankers, particularly in the U.S., “have to get the two together, or else their potential bubble-making will have a real effect.”
The Janus Global Unconstrained Bond Fund had net inflows of close to $58 million, according to Bloomberg, before the fund was hit by a fixed-income selloffs.
This topped deposits of nearly $7 million in March, bringing the level of assets in the fund to $1.52 billion, the news service says.
SEC filings show Gross and his family owned more than half of the fund as of Dec. 31. He previously ran the much larger PIMCO Total Return Fund, which recently fell to second largest bond fund behind Vanguard.
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