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In his first on-the-record comments since joining Janus Capital, Bill Gross said global economic growth is declining, causing central banks to take an aggressive stance unlikely to change soon.
That's problematic in some sense, though: Measures from institutions like the Federal Reserve and others are causing distortions in financial markets that need to be corrected.
"A zero percent interest rate has a problem—it distorts capitalism. It basically recognizes that capitalism can't exist forever when people can borrow for free," Gross said during a question-and-answer session set up by Janus. "In many cases, they borrow for free and buy financial assets, as opposed to investing it in the real economy. As a result, we're seeing distortions that central banks, and the Fed being one of them, want to correct."
His words of warning to investors, "Times have changed."
Gross spoke less than two weeks since leaving Pimco, where he helped manage the largest bond fund in the world. At Janus, he will run the firm's much-smaller unconstrained fund.
In a subsequent investor letter—his missives at Pimco were legendary for their obtuse references, including one paean to his cat—he touched briefly on his high-profile departure from the Newport Beach, California-based firm.
"Had there been a reasonable way to continue there, I would have stayed to my last breath," he wrote. "Pimco is a great firm with lots of great people, and Allianz was a fine owner for many years. But slowly and with great hesitation, I came to understand that it was time for me to leave. It happens sometimes to founders! But that is water under the bridge, as they say. I don't plan to address it further. "
(The letter did not disappoint for eccentricity—he wrote of a dance he and his wife Sue recently shared. "We dipped, we twirled, I even did a bop or two. Travolta would have been proud. We were 'Stayin' Alive!' Most of all, however we smiled!" he related in comparing the current state of financial markets to "the last stages of a 1920s marathon with partners clinging to each other in a desperate attempt to keep from falling down.")
In the online chat, he said the difference in strategy with an unconstrained fund will be, among other things, duration. At a time when the path of interest rates is less certain than it has been since the financial crisis, Gross said his new fund will feature fixed income that has shorter maturity times, and will seek to invest beyond the U.S.
"The unconstrained sticker just basically means look for opportunity everywhere, look for the best risk reward opportunities in the bond space," he said. "I'm really optimistic with this ... it is a different type of mentality."
While he's been generally quiet since leaving Pimco about what drove the separation from the firm he co-founded and led for 43 years, he expanded a bit, particularly about the advantages and disadvantages of size.
Pimco's Total Return Fund at one point boasted more than $290 billion in assets; now he runs a fund that will have a fraction of that total, at least at first.
Keeping with his often-esoteric market views, he compared his profile at Pimco to being Hansel and Gretel leaving "breadcrumbs to the house" for the rest of the market to follow, a burden he will not have at Janus.
"The key, and what Janus Capital brings, is you have to have sufficient size, a deep credit bench to have people that can trade efficiently, effectively, well in terms of prices," he said. "You have to have an asset allocation committee that understands the value of different assets. You need a certain size in order to navigate certain markets."