Bond King Bill Gross Fires Back (Fortune interview)
Bill Gross on the Fed chairman and on why he may vote Democratic.
By David Stires
from the Mar. 22, 2004 Issue
Bill Gross, chief investment officer at Pimco Funds and manager of the nation's biggest bond fund, isn't exactly known for being in the spotlight. But the Bond King (as FORTUNE dubbed him back in 2002) has been grabbing headlines recently for some controversial public pronouncements. In January, Gross declared he had moved all his personal money out of his bond fund and into alternative investments that hedged against inflation. Then he publicly compared Federal Reserve chairman Alan Greenspan to Barney Fife, the bumbling deputy on The Andy Griffith Show. Now he's launched a high-profile PR campaign to clear Pimco's name after it was charged by the New Jersey attorney general for trading abuses related to hedge fund Canary Capital Management. FORTUNE's David Stires spoke to Gross recently about Greenspan, golf, and why he may vote Democrat for the first time in his life.
Why the Barney Fife jab at Greenspan?
I wanted an analogy that suggested that he is chasing a myriad of shadows, in some cases real and in some cases not. He's been forced to bail out Long-Term Capital. He's had to reflate the equity bubble by dropping the Federal funds rate from 6 1/2 to 1. He's cognizant of the significant imbalances around the world, whether it's the trade deficit or the falling dollar. It wasn't meant to denigrate. His world is a more complicated world. The Lone Ranger knew who the villain was and went out and got him. Greenspan as Barney Fife is chasing lots of villains.
Do you think he's done a bad job as Fed chairman?
He was on the right track with his "irrational exuberance" speech, and then he dropped that and became a believer in the productivity miracle. I think he could have been more diligent in speaking to the growing dangers of a stock market bubble.
Is there anything he should be doing now that he's not?
I think he's painted himself into a corner. I think the market and this economy are hooked on cheap money. The minute he makes it less cheap there are going to be problems. To suggest a way out for someone who has painted himself into a corner is ludicrous, simply because the analogy implies it can't be done. So I wouldn't have any advice other than to gradually return the cost of money through the Federal funds rate to a more normal level and to be careful in doing so.
I hear you're thinking about voting Democrat for the first time in your life. Why?
I had a publicized stance against the war, which is part of it. I don't think Bush's preemptive invasion of Iraq was justified. And the facts make that more emphatic now. But the real bone I have to pick is with tax policy. The Republican policy is to lower taxes for the rich, and I think he's gone too far. The Democrats believe that too, so I might pull that lever for a Democrat. But that's eight months away.
How are your views affecting the way you invest?
Our attitude here at Pimco is that the government is trying to reflate. Inflation is a bondholder's nightmare. What we're doing here at Pimco is to invest in securities that are protected against reflationary efforts. It's time for bondholders to get defensive.
In late February, Pimco was dragged into the mutual fund scandal. You've since come out swinging, defending your firm in newspaper ads and in the press. Are you concerned you might antagonize regulators?
I believe in the work regulators are doing. I also believe in being honest with our clients about how we see these issues. To our knowledge, this Canary trading was infrequent, did not come close to violating the prospectuses, and harmed no shareholders in the fund.
Last question. You recently played in the Pebble Beach National Pro-Am golf tournament. How was it?
It's always a big thrill. When you make the cut, it's a personal achievement to take home and bore the wife with. |
