Bill Gross says European QE is ‘too little, too late’
Veteran bond investor Bill Gross has called Mario Draghi’s long-awaited plan to revitalise the eurozone economy with a €60bn-a-month bond-buying programme “too little, too late”.
Mr Gross, who founded Pimco, the world’s largest bond manager, but decamped to Janus Capital last year, said he believed the European Central Bank president had no option but to push ahead with his version of quantitative easing. But he warned that its success would be hampered by the fact Mr Draghi took so long to implement his asset purchasing plan.
The former Pimco chief executive told the Financial Times: “Draghi had no choice [with regards to QE] but it comes far too late. That will become his problem.”
Mr Gross said the delay and subsequent fall in interest rates across Europe raises doubts as to whether banks — the pipeline between quantitative easing and the real economy — will use the money to lend.
“I don’t think QE will work as well in Europe as it did in the US.” he said. “There are only a limited amount of securities to buy and interest rates are now so low that it’s not necessarily the case that [banks will use] the money to invest in the real economy. I do wonder if much good can come of it.”
The 70-year-old has something of a chequered history with QE. He had what he called a “stinker” of a year in 2011, missing a rally in US treasuries after wrongly assessing the implications of bond buying in US. In 2013 he also misjudged the timing and impact of the Fed’s plan to scale back its asset purchases. That mistake contributed to the biggest decline in almost two decades for Pimco’s giant Total Return fund.
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Mr Gross also said that he expected the US Federal Reserve to enact two interest rate rises this year with the first 25 basis point increase coming in June or July.
“We’ll probably know by March for sure,” he said. “In the March meeting, the Fed will either keep their patient language or they’ll drop it, and that will be the signal as to whether or not the rise will come in June or whether it’s later.”
The US recovery slowed in the fourth quarter as sluggish investment and headwinds from overseas offset a rapid acceleration in consumer spending.
“Even in the face of low inflation, the Fed recognises that zero per cent interest rates or near-zero per cent money market rates are distorting capitalism,” he said.
He added that the rate rise would be a ”symbolic” move by the Fed.
Mr Gross walked out of Pimco, the bond fund manager he founded 43 years ago, to join Janus in September. Janus Capital recorded its first inflows in five years in the final quarter of 2014, thanks to the arrival of Mr Gross.
Clients added a net $2bn to Janus funds in the three months to December. More than $700m of that came from Mr Gross personally to bulk up his new bond fund.