Pimco's Gross Skewers Bernanke: You're Part of the Problem
Bond guru Bill Gross has taken straight aim at the Federal Reserve and its Chairman Ben Bernanke, charging that ultra-loose monetary policies are holding back the economic recovery.
In his monthly letter to investors, Gross, who heads fixed-income giant Pimco and its $2 trillion in assets under management, uses unusually blunt language to convey his feelings about historically aggressive central bank easing measures.
While he concedes that the Fed isn't getting help from Washington and its fiscal mess, he said the central bank's easing programs are only complicating matters.
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Gross compares the economy to a heart that uses the ability to earn return appreciably over the cost of investment—"carry," in market terms—as its lifeblood. Carry has been increasingly difficult to achieve in the current quantitative easing environment, he said.
"Perhaps, in addition to a fiscally confused Washington, it's your policies that may be now part of the problem rather than the solution," Gross said in comments directed at Bernanke.
"Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system," he added. "Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution."
The Fed has dedicated $85 billion a month to purchase Treasurys and mortgage-backed securities, expanding its balance sheet to $3.4 trillion.
In doing so, it has helped boost the stock market and contribute to the housing recovery but has failed to generate a similar amount of strength in the broader economy.
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From Gross' view, the Fed's zero interest rate policy has made life miserable for fixed-income investors and savers, depressing yields and inhibiting businesses from innovating or expanding.
"Western corporations seem focused more on returning capital as opposed to investing it," he wrote. "Low (returns on investment) fostered by central bank policies in financial markets seem to have increasingly negative influences on investment and real growth."
Indeed, while the unemployment rate has dropped to 7.5 percent from its October 2009 peak of 10 percent, that has been as much a function of a decreasing labor force as it has been strong job creation.
Gross warned that a continuation of current policies will hamper growth, despite Bernanke's hopes that rates will return to normal once monetary policy grows the economy.
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"Sacrifice now, he lectures investors, in order to prosper later," Gross said. "Well it's been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5 percent."
The economic news of late has not been good, with manufacturing and trade levels suggesting economic growth waning from the 2.4 percent registered in the first quarter.
"Perhaps when yields, carry and expected returns on financial and real assets become so low, then risk-taking investors turn inward and more conservative as opposed to outward and more risk seeking," Gross warned Bernanke. "Perhaps financial markets and real economic growth are more at risk than your calm demeanor would convey."
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—By CNBC's Jeff Cox. Follow him on Twitter