Greenspan Joins
Fellow Legend,
Pimco's Gross
The 'Maestro' Advises
First Client Since Fed:
World Rates Point Up
By GREG IP
May 16, 2007; Page C1
Two of the world's best-known interest-rate experts, the "Maestro" and "The Bond King," are now playing for the same team.
Alan Greenspan, returning to his roots as an economic consultant, has signed up Allianz AG's Pacific Investment Management Co. as his first client since leaving as chairman of the U.S. Federal Reserve. Pimco's chief investment officer is the widely followed bond king Bill Gross.
Among the predictions Mr. Greenspan has made for his new client: World interest rates are headed higher in the next few years.
[Alan Greenspan]
Under the arrangement, signed this week, Mr. Greenspan will participate once each quarter in a strategy session with executives of Pimco, based in Newport Beach, Calif., including Mr. Gross. He will also speak with them as often as twice a week via conference call and email. Dropping a self-imposed prohibition he has observed since leaving the Fed in January 2006, he will also discuss Fed interest-rate policy with the firm, provided those conversations are private.
With about $680 billion under management, 95% of it in fixed income, Pimco and Mr. Gross regularly move the bond market. But their influence pales in comparison with that once wielded by Mr. Greenspan, nicknamed the "Maestro," after the 2000 biography of the same name by Bob Woodward.
Since his retirement, the 81-year-old Mr. Greenspan has roiled markets several times with comments to paying, often-private, audiences. A week after he left office, his comments to a private Lehman Brothers event were interpreted as meaning interest rates were headed higher. In February, his suggestion that the U.S. could slip into recession this year was blamed by some for helping trigger a global stock selloff.
Some outsiders have criticized these comments as making life difficult for his successor, Ben Bernanke.
Mr. Greenspan said in an interview that he didn't comment on Fed policy for a year because of his knowledge of confidential Fed deliberations in his last days there, and to avoid comparisons with Mr. Bernanke. "Now that more than a year has elapsed, private conversations [about monetary policy] are appropriate," he said. "I will continue to refrain from public comments on monetary policy."
Mr. Gross said Mr. Greenspan's words as Fed chairman were constrained by his position. "Now that he's on the team, we would expect for him to be open and expressive in terms of his views." For example, he said Pimco's Fed watchers, Paul McCulley and Richard Clarida, will run their Fed analysis by Mr. Greenspan.
[William Gross]
Mr. Gross has long had a reputation as one of the savviest bond-fund managers around. His main charge, Pimco's $104 billion Total Return Fund, has beaten 97% of the competition in the past ten years, with a 6.9% average annual return, according to Morningstar Inc. Lately, however, Mr. Gross's fund has been struggling. In the past year, the fund has trailed roughly three-quarters of similar funds, and so far this year, it is in the bottom 20% of its peer group.
Mr. Greenspan ran an economics-consulting firm, Townsend-Greenspan & Co., but dissolved the firm when he joined the Fed. Upon retiring, he formed Greenspan Associates in Washington, but devoted himself to speeches and writing a book that is due out in September.
Pimco first approached Mr. Greenspan about a consulting arrangement more than a year ago. Mr. Greenspan said he wouldn't consider it until his book was published. "We didn't wait," said Pimco's chief executive, Bill Thompson. His agreement with Pimco was finalized this week.
In a meeting with Pimco last week, Mr. Greenspan predicted the recent period of low global inflation could end in the next few years as the downward pressure on prices and wages from China and India's assimilation into the world economy lessens. "I asked him specifically, three years from now, where would he see G-7 interest rates, and he said, 'higher,'" Mr. Gross said. Mr. Gross said that is largely in line with his own views, though he expects interest rates to first head lower in the next 12 months, because of U.S. economic weakness.
Mr. Gross has hardly been a Greenspan cheerleader. In October 2005, he told BusinessWeek: "I like Bernanke better. Greenspan's approach in terms of throwing money at the problem, lowering rates whenever there was a crisis -- it appears to have worked. At the same time, it has led to a substantially leveraged U.S. economy. That's the legacy he leaves Mr. Bernanke."
"Obviously, I have to be more Greenspan-friendly," Mr. Gross said. More recently, he has sought common ground with Mr. Greenspan, telling how he once did his high-school homework in the bath, just as Mr. Greenspan sometimes writes speeches in the bath because of his bad back. According to Mr. Gross, Mr. Greenspan replied, "All that means is we're both concerned about liquidity."
Neither Mr. Greenspan nor Pimco disclosed either the duration or financial terms of the contract. Mr. Greenspan will not take on any Pimco competitor as a consulting client, but remains free to give speeches to whomever he wishes. He said he plans to have no more than a dozen clients, and will pick those that will enable him to do the sort of research he likes. |
