Bill Gross: There is a "Bernanke Put" on the Economy
Bond king and co-Chief Investment Officer of PIMCO Bill Gross thinks buying into equities is safe as long as the stock market remains a central consideration for central bankers.
Speaking earlier on CNBC, Mr. Gross said that the strength of the stock market remains the main concern for Bernanke and his global cohorts, although he does not necessarily think that is a correct priority.
"There was a question put to ECB's Draghi a couple of weeks ago, about what was in his mind the first thing at the beginning of each day. His answer was "Where is the stock market?!" While Gross pointed out that Bernanke has yet to be quoted on that priority in such certain terms, he believes the Fed Chairman recognizes the strong dependence markets have developed to promised liquidity from central banks.
"A good five to 10 percent of the growth we have seen in markets is attributed to liquidity in the markets," Gross estimated, pointing out that only about five percent or so was attributed, as he saw it, to inherent recovery in economic activity. "There has been about $2 trillion worth of check-writing in the past three to six months," Gross notes. "I believe that a central bank has got to keep going if they expect equity markets to continue to lie at this level," he says.
"When QE1 and QE2 ended, the stock market has gone down 1,500 points on the following month or two. Is the Fed stuck on this conundrum of providing liquidity to pump up stocks? I think so." the PIMCO co-CIO says. "I am not arguing on whether it is a good policy or not, but it is a necessary one."
Mr. Gross preceded his CNBC appearance with a tweet early in the day: "Central banks are where bad bonds go to die. Without QE, the financial markets & then the economy will falter."
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