Bill Gross Explains Why Investors Shouldn't Pay Too Much Importance To Fed's Comments And What The Fed Is Doing Wrong Currently

At times markets and investors pay too much importance to every word coming out from the Fed. But according to Janus Capital Group Inc JNS fund manager and ‘Bond King’, Bill Gross, although investors should listen to what the Fed says, but they must also have their own opinion.

Gross was recently on CNBC to discuss how much importance he pays to comments from the Fed and the mistake that Fed and other central bankers seem to be making right now.

Got To Have Your Own Opinion

“I have got a coffee mug that says ‘Don’t fight the Fed’…on the other side I have written in with dark pencil, ‘But be very afraid’,” Gross began. “It means that you should listen, but it also means that you should have an opinion in terms of what they are doing and the affects that it is having, the repercussions, the economic growth, the inflation going forward because they are basing their policy on models of 20 or 30 years ago and we are in a new world. They are basically moving in the dark much like investors are, so you got to have your own opinion.”

The Mistake

Gross was asked what he would pick as the one thing that the Fed might be doing wrong currently. He replied, “I’ll pinpoint in the last few weeks what has happened and it hasn’t been Janet Yellen, but it has been Stan (Stanley) Fischer who has been the vice Chairman and it has been Mario Draghi, who is the chairman of the ECB, the president. Basically both of them have come out in a very unusual fashion, almost like a fireman in a crowded theatre yelling ‘fire’. It just doesn’t happen.”

“But they basically came out and they said, ‘watch out for volatility’, while central bankers have been trying to dampen volatility for the past 5 years. To me that was a signal, to me that basically said they want longer-term rates to go higher. Now why would they want that? Because insurance companies in Europe, insurance companies in United States, pension funds and so on are suffering with 2to 3 percent long-term yield,” Gross concluded.