Gross Says Lingering Inflation Should Make Investors Think Twice

(Bloomberg) -- Bill Gross, the one-time bond king, warned that investors should turn cautious and trim expectations for returns, in a self-published book that covers a range of subjects including his acrimonious exit from Pacific Investment Management Co.

Inflation is likely to be persistent amid ballooning government debt, Gross, 77, wrote in the memoir titled “I'm Still Standing,” and the Federal Reserve's 2% target is “illusionary.” Calling debt “a virus in modern-day capitalism,” Gross said yields on 10-year Treasuries may more than double over the next decades unless the Federal Reserve keeps buying bonds.

“Stocks and even bonds can thrive with low-to-mild future inflation,” the billionaire wrote. “But anything beyond 3% and higher” is market-threatening. “Don't get too excited.”

U.S. consumer prices rose 7.5% in January, the fastest pace in four decades, causing rare simultaneous losses for stocks and bonds. A Bloomberg index tracking a 60-40 portfolio of stocks and bonds has declined 6.7% this year, heading for the worst annual return since 2008.

Gross co-founded Newport Beach, California-based Pimco in 1971 and rose to the pinnacle of the financial world after building it into a fixed-income behemoth. In 2014, he left the firm following clashes with other executives.

He wrote that he was ousted from Pimco, at least in part, because of a confrontation he had with the chief executive officer of parent company Allianz SE. During a meeting to discuss bonuses at the money manager, Gross recalled, he told then-CEO Michael Diekmann to “f--- off.”.

“I wanted to show that we were in control and we were the alphas at the table,” Gross wrote. Diekmann replied that “no one speaks to me like that.”

Gross defended his investing record at Pimco, which tried to make the case that his performance was subpar and “that it was time for Babe Ruth to hang up his cleats.” Declining to spell out details of his confidential settlement in 2017, he said “the money didn't matter really, but the shame of being fired was a lot to handle.”

Gross jumped to the firm now known as Janus Henderson Group Plc. He acknowledged in the book that while he made money for investors at Janus, his returns were below industry standards. He took on more risk by managing an unconstrained fund, and said he maybe shouldn't have accepted the new role.

Why Janus?

“Why Janus? Or why not retire silently to a family office without the complexity of financial regulations and daily interaction with five or six new employees in Newport Beach? Good question,” he wrote. “The answer is I should have, but didn't.”

He attempted to outrace Pimco while at Janus.“My ego got the best of me there,” Gross wrote. He retired from asset management in 2019.

Among other topics Gross addressed in the book is Cathie Wood's Ark Investment Management. He called Wood a “two-year wonder,” saying that her high stock turnover has cost investors “lots of money.”

Turning to crypto currencies, Gross said he's invested “a small” percentage of his assets in Bitcoin and expects it to appreciate more than the S&P 500.