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CNBC Exclusive: CNBC Transcript: Janus Global Portfolio Manager Bill Gross Speaks with CNBC’s Brian Sullivan on “Power Lunch” Today

WHEN: Today, Wednesday, June 10th

WHERE: CNBC's "Power Lunch"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Janus Capital Portfolio Manager Bill Gross on CNBC's "Power Lunch" (M-F, 1PM-3PM ET) today. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000387465.

All references must be sourced to CNBC.

BRIAN SULLIVAN: WELCOME BACK TO "POWER LUNCH" I'M BRIAN SULLIVAN. WE ARE LIVE HERE IN DANA POINT, CALIFORNIA. JANUS CAPITAL ADVISOR DAY HERE. AND WE ARE JOINED NOW BY BILL GROSS, EXCLUSIVELY. OBVIOUSLY RUNS THE UNCONSTRAINED BOND FUND FOR JANUS. THERE'S A LOT TO DO, SO LET'S GET RIGHT TO IT. BILL, BY THE WAY, THANK YOU FOR HAVING US OUT AT YOUR HOUSE.

BILL GROSS: THANKS FOR COMING. DID I KNOW I GOT MARRIED HERE 30 YEARS AGO ON THIS VERY SPOT?

SULLIVAN: CONGRATULATIONS. I DID NOT KNOW THIS.

GROSS: HELLO TO SUE, SHE IS WATCHING.

SULLIVAN: HELLO TO SUE AS WELL, YOUR WIFE. CONGRATULATIONS ON THAT BY THE WAY.

GROSS: THANK YOU.

SULLIVAN: NOW LETS MOVE ON TO GREECE. ALRIGHT HERE WE GO. YOU TWEETED THIS OUT TODAY. QEs WORLDWIDE SUPPORTING FINANCIAL ASSETS. YOU MEAN THE ECB AND THE BANK OF JAPAN. EACH $1 TRILLION PLUS. U.S. CORPORATE BUYBACKS, $1 TRILLION PLUS AS WELL. CHINA, TOO. WHAT HAPPENS WHEN IT STOPS? ANSWER YOUR OWN QUESTION. WHAT HAPPENS WHEN IT STOPS?

GROSS: WELL, LIQUIDITY DRIES UP. AND IF WE THINK THAT LIQUIDITY IS POOR NOW, IT WILL BE EVEN WORSE TWO, THREE, FOUR, FIVE YEARS FROM NOW WHEN THESE MANEUVERS TYPICALLY STOP. YOU KNOW, YOU WOULD THINK THAT A CENTRAL BANKER WOULDN'T STOP IF THEY KNEW THAT IT WOULD PRODUCE A CRISIS TYPE OF MOMENT AND LOTS OF VOLATILITY. BUT CENTRAL BANKERS DON'T EXACTLY KNOW THE WAY HOME, AND SO WE'LL JUST HAVE TO SEE. BUT THE GLOBAL MARKETS HAVE BENEFITED TO THE EXTENT OF TRILLIONS OF DOLLARS OF LIQUIDITY OVER THE PAST FEW YEARS AND WE HAVE TO WONDER WHAT HAPPENS WHEN THEY DONT?

SULLIVAN: WELL, THIS SEEMS TO BE THE HOME OF THE CAR CHASE, RIGHT? THE HELICOPTER-CAR CHASE. AND I WAS THINKING THAT THE METAPHOR MAY BE THAT WE'VE BEEN WATCHING THIS SLOW-MOTION CAR CHASE WAITING FOR THE CAR THAT'S BEING CHASED TO RUN OUT OF GAS. AND MAYBE THAT'S THE MARKET. AND THAT THE CAR JUST SEEMS TO CONTINUE ON FURTHER AND FURTHER WITH AN ENDLESS GAS TANK. HOW MUCH LONGER DO YOU THINK THIS CAN GO ON? BECAUSE THERE ARE PEOPLE THAT HAVE BEEN WAITING FOR THIS TO END BADLY NOW FOR A COUPLE OF YEARS. AND ALL THAT'S HAPPENED IS THAT INVESTORS HAVE MISSED OUT ON SOME GOOD RETURNS IN MANY CASES.

GROSS: AND THAT'S THE BAIN OF A PORTFOLIO MANAGER. I MEAN, YOU CAN WAIT IT OUT IN CASH AND EARN NOTHING, OR YOU CAN PARTICIPATE AND HOPE THAT YOU CAN TIME IT PROPERLY AT THE MOMENT OF THE END. BUT AS YOU MENTIONED, IT'S BEEN FIVE OR SIX YEARS AND MARKETS HAVE DONE VERY WELL AND CHECKS ARE STILL BEING WRITTEN. AND IT IS ALMOST LIKE A TAG TEAM MATCH IN WHICH THE FED HAS TRANSFERRED OR TAGGED THEIR PARTNER WITH THE ECB AND THE BOJ. AND LIKE I MENTIONED, CORPORATIONS ARE CHIPPING IN AND CHINA'S DOING ITS PART. AND SO ONE AFTER THE OTHER, THEY TAKE RESPONSIBILITY FOR WRITING CHECKS.

SULLIVAN: BUT WHAT HAPPENS WHEN THERES NO ONE LEFT TO TAG?

GROSS: WELL, AGAIN, THEORETICALLY, THEY WON'T STOP UNLESS THEY THINK THE ECONOMY HAS NORMALIZED. THE PROBLEM BEING THAT THE NORMALIZATION MAY HAPPEN AT A POINT IN WHICH INFLATION IS NOT 1%, BUT 2% OR 3% OR 4%, AND THEREFORE THE BOND ASSETS AND STOCK PRICES MIGHT BE HEADING LOWER.

SULLIVAN: WE TEND TO TREAT THE FEDS WORDS AS GOSPEL, AND DRAGHI, TOO, PERHAPS, OF THE ECB. YOU JUST SAID A FEW MOMENTS AGO THAT MAYBE THE FED DOESNT KNOW THE WAY HOME. AS ONE OF THE WORLD'S PROMINENT INVESTORS, HOW MUCH DO YOU TREAT THE FEDS WORDS AS GOSPEL VERSUS IT IS A SUGGESTION, BUT I'M GOING TO WITH WHAT BILL GROSS THINKS?

GROSS: NO, I HAVE A COFFEE MUG THAT SAYS DON'T FIGHT THE FED.

SULLIVAN: IS THIS THAT SIMPLE THOUGH?

GROSS: NO. BECAUSE ON THE OTHER SIDE I'VE WRITTEN IN WITH DARK PENCIL, "BUT BE VERY AFRAID."

SULLIVAN: YOU CAN MARKET THAT ON ALIBABA.

GROSS: SO IT MEANS YOU SHOULD LISTEN, BUT IT ALSO MEANS THAT YOU SHOULD HAVE AN OPINION IN TERMS OF WHAT THEY'RE DOING AND THE EFFECTS THAT IT'S HAVING, THE REPERCUSSIONS, THE ECONOMIC GROWTH, THE INFLATION GOING FORWARD. BECAUSE THEY'RE BASING THEIR POLICY ON MODELS OF 20 OR 30 YEARS AGO AND WE'RE IN A NEW WORLD. THEY'RE BASICALLY MOVING IN THE DARK MUCH LIKE INVESTORS ARE AND SO YOU HAVE TO HAVE YOUR OWN OPINION, BUT BE VERY AFRAID.

SULLIVAN: SO WHAT DO YOU THINK IF YOU CAN PINPOINT ONE THING THAT THE FED MAY BE DOING WRONG?

GROSS: WELL, I'LL PINPOINT IN THE LAST FEW WEEKS WHAT'S HAPPENED. AND IT HASN'T BEEN JANET YELLEN, BUT IT'S BEEN STAN FISCHER WHO IS THE VICE CHAIRMAN AND IT'S BEEN MARIO DRAGHI, WHO'S THE CHAIRMAN OF THE ECB – THE PRESIDENT. SO BASICALLY, BOTH OF THEM HAVE COME OUT AND VERY UNUSUAL FASHION, ALMOST LIKE A FIREMAN IN A CROWDED THEATER YELLING FIRE. IT JUST DOESN'T HAPPEN. BUT THEY BASICALLY CAME OUT AND THEY SAID WATCH OUT FOR VOLATILITY WHILE CENTRAL BANKERS HAVE BEEN TRYING TO DAMPEN VOLATILITY FOR THE PAST FIVE YEARS. TO ME, THAT WAS A SIGNAL. TO ME, THAT BASICALLY SAID THEY WANT LONGER TERM RATES TO GO HIGHER. NOW, WHY WOULD THEY WANT THAT? BECAUSE INSURANCE COMPANIES IN EUROPE, INSURANCE COMPANIES IN THE UNITED STATES, PENSION FUNDS AND SO ON ARE SUFFERING WITH 2% TO 3% LONG-TERM YIELDS. THEY NEED HIGHER YIELDS.

SULLIVAN: SO THEY'RE TALKING THE INSURANCE COMPANY'S BOOKS?

GROSS: I THINK SO. AND I THINK WHAT WE'VE SEEN IN THE PAST FEW WEEKS, IT HASN'T BEEN A TAPER TANTRUM. IT HASN'T BEEN A SITUATION WHERE THE YIELD CURVE HAS FLATTENED AND SHORT RATES ARE GOING UP. IT'S BEEN A SITUATION WHERE THE LONG RATES ARE GOING UP. AND I THINK INVESTORS ARE BEGINNING TO RECOGNIZE THAT THEY WANT LONGER RATES TO MOVE HIGHER IN ORDER TO SALVAGE BUSINESS MODELS.

SULLIVAN: OK. IN A MOMENT OF CANDOR, YOU ADMITTED THAT YOUR CALL, BY THE WAY, ON THE GERMAN BOND MARKET WAS A HELL OF A CALL. AND IT WAS. I MEAN GERMAN BUND YIELDS CONTINUE TO GO UP. THE PROBLEM WAS, YOU DIDN'T EXECUTE IT PROPERLY. YOU SAID THAT, YOU SAID IT ON OUR SHOW A SHORT WHILE AGO. SO WITH THE BIG MOVE IN TREASURIES RECENTLY, OR WHATEVER ELSE YOU SEE OUT THERE GLOBALLY BECAUSE YOU CAN PRETTY MUCH DO WHATEVER YOU WANT – THAT'S WHY THEY CALL IT AN UNCONSTRAINED FUND.

GROSS: THAT'S RIGHT.

SULLIVAN: WHAT IS THE SINGLE BEST IDEA TREE THAT YOU HAVE MADE RECENTLY?

GROSS: THE BEST IDEA, AND IT HASN'T WORKED YET, BUT IT'S ONLY BEEN UNDERWAY FOR ABOUT A WEEK OR TWO. SO WE WILL GET THERE.

SULLIVAN: SO THIS IS ONE YOU HAVE ACTUALLY PUT ON VERSUS THE –

GROSS: YES, AND WILL CONTINUE TO PUT ON, YOU KNOW, SUBJECT TO PRICE. BUT IT'S IN MEXICO. MEXICO HAS 7% NOMINAL INTEREST RATES. MEXICO HAS 3% REAL INTEREST RATES. THAT MEANS EVEN THOUGH MEXICAN INFLATION IS HIGHER, 3% OR SO, RELATIVE TO THE UNITED STATES, THATS ALL ADJUSTED FOR IN TERMS OF A LINK OR A TIP. SO MEXICAN TENURE LINGERS AT 3%, U.S. TEN-YEAR TIPS AT.5%. THERES A 2.5% SPREAD BETWEEN THOSE TWO. AND BELIEVE ME, THE QUALITY DIFFERENCE DOESN'T JUSTIFY IT.

SULLIVAN: SO MEXICAN GOVERNMENT DEBT, ONE OF BILL GROSS' BEST IDEAS WOULD BE A FAIR HEADLINE FROM THIS INTERVIEW?

GROSS: VERY GOOD. AND THE PESO HAS BEEN TRASHED BY 20% TO 25% IN THE PAST SIX MONTHS. AND SO YOU GET THE BENEFIT POTENTIALLY OF A REBOUNCE THERE.

SULLIVAN: TERRIFIC. BILL, IT WAS A REAL PLEASURE. WE'VE GOT TO GO IN AND DO A PANEL, SIR.

GROSS: YES, SIR.

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