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It is a very big week of economic news, and just a few of the highlights include that CPI report, the latest FED decision on Wednesday. We're also going to keep a eye on producer prices and job has claims on Thursday. Let's get some insight on what it all means for the bond market. Joining us is the bond King himself, Bill Gross, co founder of Pimco. Bill, it's our launch day. It's our first show on the news set we relaunched. We super appreciate it joining us on
launch day. Bill, Thank you so much.
You're welcome. Good to be here.
All right, what's the trade into the Fed on Wednesday? What do you think?
Well, I don't think there's much of a trade on treasuries, you know, to my way of thinking, the tenure, which is close to four and a half let's call it four and a half percent, is dependent upon inflation, which we'll see on Wednesday, and we'll know more because of that. But if inflation is two percent, I think the ten year belongs close to four percent. If it's three percent, it belongs closer to five. And we're right in the middle. So at the moment with four point five ten year
treasuries and break evens that are around to twenty. You know, that's a force that's a four to seventy basically break even for the nominal ten year treasury, and I think we're about there. There's not much to be done until we know more.
Well, what are the chances that we see, say the median dot in twenty twenty four and twenty twenty five actually move higher. I mean, do you think there's a possibility And what would be the reaction to something like that.
Well, I think it would be negative.
You know, the Fed is basically signaled they're sort of done, perhaps ninety five percent done in terms of raising rates. It's not that they can't raise them. If to print on CPI isn't bad for the next months. But you know, I think the market basically anticipates the Fed to stay and maybe in September, maybe in December, maybe one or two cuts if you know, the current numbers continue as we've seen them.
I'm curious, Bill, when we talk about all the moves that we've been seeing in the bond market as of late, particularly in treasuries, as people try to sort of gain what the FED does next. Is there still a strong correlation between what we're seeing there and what we're seeing in the equity market or is that kind of splintered.
Yeah, I don't think it exists anymore. I mean, for years I've followed the correlation between the two, between real interest rates and stock prices, between the FED funds rate and stock prices, and you know, as we've seen, you know, the FED raised there are short term rates over the past year and a half or two from close to zero to now five and three eights, and the stock market basically I has neglected all of that in terms of the rise and not only nomenal but real interest rates.
So you know, the correlations broke down. It's more of a momentum type of market. Actually, it's a very momentum driven market with AI that you've just talked about.
And so.
I wouldn't be so keen I guess on correlating stock prices to interest rates at the moment, at least.
When you look at valuations around here, and I know you can sort of look at this market either you could go the traditional bottom up valuation method or just I guess, look at the technicals or ride the momentum. But when you look at valuations and all the arguments right now that this market might be overvalue, things might be overpriced, here do you find I guess, credence to that?
Oh, I think so. I mean it depends upon.
Multiple, which multiple you use, whether it's the ten year cape as they call it, or whether it's the the immediate expectation in the next twelve months. In any case, it's historically high or close to historically high at twenty one twenty two times for a pe. And so to my way of thinking, if the economy slows, and I
think it's slowing, we don't need a recession. But if the economy slows and earning US growth fails to meet expectations, I think there's a problem in terms of valuation at the moment for many stocks.
Many stocks.
Well, that does that mean like right now, based on at least what we know publicly, would you be comfortable taking a broad market position right now in US equities?
No, But I'd be comfortable in taking a specific you know, bet and investment in certain areas which are still very attractive. I know that's the standard explanation that that investors basically say, but I think there's some areas in the market that are very attractive based upon a slowing economy and based upon high valuations, and many stocks and the nastac well, let's talk about a few I've owned for a long time and I have recommended for a long time. Master
Limited Partnerships for pipelines. These are stocks. These are partnerships, and because of that, they can't be bought by municipal basically by the market, by mutual funds, and so it's a narrow universe. These are stocks like energy transfer ets a symbol like MPLX Marathon Pipeline, which is the symbol there. You know. They yield between eight and eight and a half percent. And there's one that I love, I actually love Wees Western Pipeline yields about nine and a half percent.
These yields are basically utility, their taker paid type of contracts. They defer because their partnerships, they defer taxes on their dividends, and so it's a it's a huge you know, and it's a huge attraction to me in terms of yield and potential price appreciation. And they're all close to the top of their twelve month highs along the.
Same lines you mentioned utilities. Utilities continue to sort of outperform in a large part of that other power players like Fistra or Constellation Energy, and that's definitely related to the AI play. Do you buy into that kind of hype?
Yeah, I think so.
I own some Ane was just the next Energy, and I think there's a correlation there between interest rates and between.
You know, the price of the stock.
So I think in certain areas, I think utilities as a whole have sort of been overblown in terms of the move relative to AI, aretill artificial intelligence and the fact that they use more energy. But you know, there are certain stocks there. Anye is one of them that I like.
What about banks right now? Bill, There's been a lot of talk here about financials and this idea that quite a few of them might actually sort of have been kind of valued, maybe not appropriately, the idea that there's a little bit more juice left in some of those names. Do you find any real value there, particularly outside of just the big money center banks.
Yeah.
I've bought some regionals today and I do think, you know, they're down ten or fifteen percent from their peaks, and so that's one positive going forward. Many of them yield five to five and a half percent. I bought this morning. You know, Key Bank k E Y yields close to
six percent. And you know, it seems to me that the commercial real estate problems has been reserved against for the most part, and so k E Y or Truest TFC or Citizens CFG, you know, to my whay, I think in are very attractive investments for the media to long term.
I am curious on the point though, of commercial real estate. There's been so much handwringing right now about the next shoe to drop, the idea that we haven't really worked ourselves through the cire crisis or whatever we want to call it. Here, you're not worried that we're going to see any sort of major defaults, at least not major enough that would really rattle the market.
Well, I think it's dependent upon the economy. If we get a decent recession, then obviously you know, commercial real estate loans are less attractive than they are at the moment, So watch the economy. As I pointed out before, I think in many cases they've these regionals have had a year or two years to reserve. Again, it's the potential for you know, additional losses. It's just you know, they
traded pees of around nine. They traded price to book values of point seven or point eight relative to something like JPM, and so you know, I like them for the long term, Hey Bill.
One of the big news items that really move markets for the Ust twenty four hours is what we saw over with the parliamentary elections and Matcron calling for legislative elections at the end of June early July. The market moved quite sturdily here. The euro hit a one month low, you got to pop in yields, the BTP boom spread really blew out, you got a weakness and the equity market over in France in particular. What did you make of the market reaction to what we saw.
Well, I think it's to be expected.
I think in terms of an attraction German tenure boons and French oats the tenure there there are spreads of narrowed significantly in the past month or two relative to treasuries and today as well by eight or ten basis points. So there's there's coming to a point where European bonds are more attractive than treasury bonds in my.
Opinion, where what European bonds would you be looking at.
Bill Well, I mentioned tenure buns, ten year oates, the Italian bonds as well. Has has you know, gained more attraction in the past several weeks, and certainly after last night's snap election in France And.
It gets It's interesting too, Bill, because we talk about what happened overnight with the with the EU elections and the snap election in France coming up, we also had three elections, uh of course in India and Mexico and a couple other places South Africa that also rattled investors. And of course, as you know, we still have a big election here in the US that could have a dramatic impact on investor psychees. Are those, at least here
in the US as we move forward to November? Do you think that is going to be a tradable event? Do you think that the policy difference is and the reaction to whoever wins in November will be market moving?
Yeah?
I think so.
And in these cases that you mentioned, these prior elections in the last few weeks, you know, they've all moved right, and there's a certain consequence to that, But there's also an element of uncertainty, and so what we've seen, you know, last night, and what we've seen in the last few weeks is a reaction to uncertainty in terms of not only the party that's dominating, but uncertainty in terms of
what their policies will be. And I think as we moved to November and something becomes more clear in terms of who might or who might not win, the uncertain plus the potential policy implications, I think you could impact treasuries significantly.
Yeah, it's gonna be interesting to see your next investment outlook post election to see what you have to say there. And it's interesting too how you've compiled all of your past investment outlooks into a new book. One thing that I didn't really see in there, and that maybe you'll have to do in an updated book is maybe have a little bit more discussion about AI and what that
means for the market as a whole. When you look at all the AI hype around here, the run up in Nvidia, do you find any sort of opportunity there that's to your liking? Do you think it's sustainable?
Well, not a pro there, but I would say that AI, to my way of thinking, has the potential to increase productivity in general across the US economy. The question is by how much, or if at all, to the extent that it even increases productivity by half of percent, I think it's significant in terms of economic growth. So you know that's the bet. You know, specific stocks, I like Microsoft.
I've never been involved with Nvidia or or Amazon or even Apple today for instance, but Microsoft is my favorite. Other than that, you know, it's a wait and watch type of situation in terms of the impact on economic growth.
So, Bill, not only is it the launch of our new show, but also you will be selling Peace by Piece, a US stamp collection, on Friday and Saturday at Robert A. Siegel auction House. Now you've sold your stamps before. You are clearly a very well known collector. Some of the estimates, though, think this could bring in a record of something like twenty million dollars. Bill, what told you that this was the right time to sell in this kind of environment these stamps?
Well, I'm eighty years old, and you know it's time to turn over to turn this over to some other future collectors. And I also think you know a slight negative here is that stamp collecting has always been a function of kids and they're collecting who later on become adults and you know, wealthy adults. But in this case, I don't think the kids are collecting stamps anymore. They're more involved with their cell phones and their games. But that'd be one of the reasons too.
Well.
Well, I could tell you, Bill, there are still a few nerdy kids out there that's still into it. I know a couple in my family that still do it. I don't think they're in the market for the stamps that you're selling. They're pretty pricey here. But I was just lucky to the collect I mean, this is just an impressive collection. Obviously, probably the star of that, of course,
is one of the inverted Jenny's. But I am curious that when you look at just the collection that you had and how you put them together here, was that really from the heart. Did you sort of look at this and just say, oh, this will be a good deal later, or did you say, look, I just want to own this, and I want a piece of this. I want to be able to hold it and look at it.
Now.
My mother back in the forties, in the early fifties, collected stamps in order to send me to college. I took those stamps to San Francisco in nineteen sixty one and tried to sell them. They'd offer me nothing relative to the three percent on the face of the stamp.
So basically, when I had some money twenty.
Years ago, I said, she had the right idea, but she bought the wrong stamps. And so if I can apply bond market economic you know, terminology and philosophy to the stamp auction, much like paintings have a provedance and so on, then perhaps we can make some money as well.
All right, Bill, always great to talk to you, and good luck on that auction later this week. Bill Gross, the co founder of PIMCO, The bond King,