Bill Gross: FOMC "Word-Smithing" Not Indicative of QE3 Chances
Bill Gross does not believe FOMC meeting minutes necessarily signal to no further quantitative easing from the Fed. He thinks the Fed is just one of several pawns on a larger chess game when it comes to deciding on QE3.
The Co-CIO of bond giant PIMCO and proclaimed bond-king Bill Gross, speaking to CNBC this morning said that Fed minuted said did not really change the chances on QE3. "You have to think of the Fed as a single piece on a chess game," he said, noting that nothing would change unless other meaningful pieces indicated so. "All this word-smithing from the Fed does not really change the chances on further liquidity. Until one of the other pieces concedes and says "check mate", nothing is decided."
Gross notes that, regardless of where odds of a QE3 are, much of the current market upside depends on the promise of further quantitative easing. "Call it what you want, call it quantitative easing, LTRO or anything you want. The fact is there has been a lot of check-writing in the last three to six months, and that has been based on affirmations or hopes of the markets strengthening. That action on the markets has surely been dependent on further easing."
Gross's portfolio, heavily weighed on mortgage derivatives, has had significant positive returns, which has been largely due to expectations that the Fed will stay put on rates through 2014, and to a lesser extent, on upcoming QE3.
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