US Markets

Stock Rally Not Sucking Cash Out of Bonds: Gross

Gross: 'Don't Own Long Bonds'

The money pouring into the stock market, as the Dow Jones Industrial Average and the rally to five-year highs, does not seem to be occurring at the expense of fixed-income investments, bond dealer Bill Gross told CNBC's "Squawk Box" on Wednesday.

Gross, founder of Pimco, which also has stock funds, said he thinks the stock inflows are coming from money market funds, capital gains and delayed dividend payments from last year "but not from the bond market at the moment."

He added that he's bullish on equities. "We think the market can go up 5 or 6 percent, and we know it's done that already in the month of January."

Gross: 'Cult of Equities' Still Dying, Despite 14K

Gross also insisted there's money to be made in bonds, despite the record low yields caused by the Federal Reserve's near zero interest rate policy.

"When observers talk about the stock market being a market of stocks, the bond market is a market of bonds," he said.

The beginnings of a bear market in long bonds started in July, he said, but added, "If you can avoid long-term bonds, if you can buy TIPS, if you can buy something from Mexico, Brazil, Italy, Spain with higher yields and more defense protection to price, then I think you've got a chance to earn 3 or 4 percent in the bond market."

Earlier this week, Gross warned in his February newsletter that a global central bank-induced credit "supernova" could cause an atmosphere of diminishing returns for investors and portfolios with more hard assets, like commodities, and fewer financial assets, like stocks.

(Read More: Beware 'Credit Supernova' Looming Ahead: Gross)

He further explained this Wednesday. "The influence of credit is less and less potent," he said. "It takes $20 in credit now to generate $1 of real GDP. Whereas back in the '70s, it took $5. More and more credit is required to expand the economy."

Gross also reiterated that the U.S. economy is still in the midst of Pimco's 2009 prediction of three to five years of the "new normal."

(Read More: Federal Reserve Should Do Less, Not More: Morici)

"We think the 2 percent [GDP] number in the U.S. [this year] -- the global growth of 3.5 percent, zero percent in Euroland -- is a number based on structural headwinds such as demographics, globalization, technology and high debt levels, all combining to limit growth relative to the past five or 10 years."

By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC