Tags: bill gross | federal reserve | cnbc | invest

Bill Gross: Don't Fight the Fed - But Be Very Afraid

By    |   Wednesday, 10 June 2015 04:30 PM

Bill Gross of Janus Capital Group that while it’s common nature for investors to treat everything the Federal Reserve says as scripture, he agrees with the adage of “Don’t Fight the Fed” — but with one caveat.

“I have a coffee mug that says ‘Don't Fight the Fed,” he told CNBC when asked about just how much faith he has in the strategy of the central bank.

But he cautioned his outlook isn’t that simple. “Because on the other side I've written in with dark pencil, ‘But be very afraid.’”

He warned that that he thinks global central bankers really don’t have an end-game strategy after years of financial stimulus.

“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, inflation going forward. Because they're basing their policy on models of 20 or 30 years ago and we're in a new world,” he said.

“They're basically moving in the dark much like investors are, so you have to have your own idea,” he said.

“Liquidity dries up. 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,” he said.

“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,” he said.

“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 don't?”

Gross is just one of numerous experts who have called out the Fed for not having a successful exit plan and risking the credibility and image of the central bank by risking yet another financial crisis.

Former Fed Board of Governors member Lawrence Lindsey warned CNBC earlier this week that the Fed must “take away the punch bowl” and finally raise rates.

"Risks are necessarily two-sided, and by delaying action, what that'll mean is when they have to move, they're going to have to move much more quickly. And to me, that's a much more destabilizing type of risk than a gradual adjustment upward in rates," the Lindsey Group CEO said.

"It's a lot of fun while the bubble is going up, and no one wants be accused of ending the party," he said. "But as [former Fed Chairman] William McChesney Martin said, it was the job of the Fed — it is the job of the Fed — to take away the punch bowl before the party really gets going."

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Bill Gross of Janus Capital Group that while it's common nature for investors to treat everything the Federal Reserve says as scripture, he agrees with the adage of "Don't Fight the Fed" - but with one caveat.
bill gross, federal reserve, cnbc, invest
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2015-30-10
Wednesday, 10 June 2015 04:30 PM
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