Why Former Bond King Bill Gross Says Treasury Yields Will Double

Bill Gross

They used to call Bill Gross the Bond King. The co-founder of bond house PIMCO, he once dazzled the world with his ambidextrous fixed income investing prowess, which he showed by then-unprecedented forays into such exotica as foreign debt.

Now retired, he still pops up on CNBC and other public venues to dispense his views. The latest: Today’s spiraling inflation is going to be a fixture for a while, so the benchmark 10-year Treasury will see its yield double over the next decade—unless the Federal Reserve resumes its dwindling bond-buying program.

In a new book called “I’m Still Standing,” Gross labels the Fed’s 2% inflation target as “illusory.” He adds: “Stocks and bonds can generate good returns with low-to-mild future inflation … But anything beyond 3% and higher” is hazardous for both asset classes.

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Holding down inflation is extremely difficult due to the U.S. government’s heavy debt, he says. Debt, he goes on, is “a virus in modern-day capitalism.”

The Consumer Price Index recently hit 7.5%, while the Fed’s favorite inflation metric, the Personal Consumption Expenditures, sits at 6.1%. The Fed expects PCE for 2022 to settle back to 2.7%, and dip even more next year, to 2.3%.

Seeking to rein in inflation by tightening, the central bank is set to begin raising short-term rates starting from its upcoming meeting in two weeks. It also is gradually ending its bond-buying campaign, designed to hold down longer-term rates, such as that of the 10-year.

Gross self-published the book because he felt he had more editorial control and could get it out quicker than with a traditional publishing firm. The book also deals with his contentious relations with Allianz, the French investment company that bought PIMCO.

He left under acrimonious terms in 2014. That was, he writes, after telling then-CEO Michael Diekmann to … well, something that once wasn’t talked about in polite circles. “I wanted to show that we were in control and we were the alphas at the table,” Gross writes of the face-off with Diekmann. “At 72 years of age, I suspected I wasn’t indispensable.”

Gross then went to what now is known as Janus Henderson Group, which he admits was a mistake. His returns there were not market-beating, as they used to be routinely.

“Why Janus? Or why not retire silently to a family office without the complexity of financial regulations and daily interaction with five or six new employees in Newport Beach? Good question,” he writes. “The answer is I should have, but didn’t.” He left in 2019.

Gross’ fortune now is $1.5 billion, according to Forbes. He now runs his own family office, but still is in the limelight.

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Tags: 10-Year Treasury, Bill Gross, Inflation, Janus, PIMCO

The California Public Employees’ Retirement System and California State Teachers’ Retirement System had busy fourth quarters in 2021, investing in technology and green energy companies, and divesting from soft drink manufacturers and dietary supplement products.

CalPERS’ biggest increase in shares in Q4 was in Cisco, a technology conglomerate that manufactures and sells hardware, software and telecommunication equipment. The fund purchased an additional 6 million shares this quarter, according to its 13F report, making it the largest purchase of an individual stock that the company has made in the most recent quarter.

CalSTRS’ largest buy in Q4, according to its 13F, was Bloom Energy Corp., a green electricity company that uses solid oxide fuel cell generators that create electricity through a chemical reaction. The fund purchased over 900,000 shares of Bloom, which went public in 2014, increasing its total holdings in the company by 477%.

One corporation that falls on both CalPERS’ and CalSTRS’ lists of most bought shares this past quarter is Microchip Technology Inc. With headquarters in Arizona and assembly facilities located in the Philippines and Thailand, the pension funds might have seen it as a hedge against dependency on the semiconductor industry in Taiwan, which has been under the looming shadow of potential invasion from China.

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CalPERS’ biggest sale this quarter was in the Coca-Cola company. Despite the company having relatively strong earnings in Q4, CalPERS sold more than 4 million shares, decreasing its total holdings in the company by 25%.

Coca-Cola may pose environmental, social and governance risks for investors since regular consumption is strongly linked with type 2 diabetes. The corporation has been under fire for its marketing practices in Mexico, where many say that the soft drink is more accessible than water. The corporation’s deal with a water plant in the Mexican city of San Cristobal De Las Casas may be contributing to the limited water supply and increased rates of fatal diabetes in the area, according to a New York Times article.

CalSTRS’ biggest sale last quarter was Nature’s Sunshine Products, a manufacturer and marketer of dietary supplements based in Utah. The fund sold over 500,000 shares last quarter, decreasing its total shares in the company by 99%.