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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 an eye on put Sur prices and jobless 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 new set we relaunched we super appreciate it joining us uh 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 I don't think there's much of a trade on treasuries you know to my way of thinking um the 10year which is close to 4 and a half let's call it 4 and a half% is dependent upon inflation uh which we'll see on Wednesday and we'll know more because of that but if inflation is uh 2% I think the 10year belongs close to 4% if it's 3% it belongs closer to five and we're right in the middle so um at at the moment with 4.5% 10e treasuries um and break evens around 220 you know that's a 4 that's a 470 basically uh break even for the nominal 10year Treasury and uh I think we're about there there's not much to be to be done until we know more Bill what are the chance that we see say the median dot uh in 2024 and 2025 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 um you know the the FED is basically signaled they're sort of done uh perhaps 95% done uh in terms of raising rates it's not that they can't uh raise them if the print on CPI isn't uh bad for the next several months but um you know I I think the market basically anticipates the FED to stay and maybe in September maybe in December maybe one or two uh Cuts if you know the current numbers uh continue as we've seen them I am curious uh 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 I don't think it exists anymore I mean for years I I've uh followed the correlation between the two between real interest rates and uh stock prices uh between the FED funds rate and stock prices and you know as we've seen uh you know the fit raised uh their short-term rates over the past year and a half or two from close to zero to uh now 5 and 38 and the stock market basically uh has neglected all of that in terms of the the rise in not only nominal but real interest rates so um you know the correlation has broke down it's more of a momentum type of Market uh actually it's a very momentum driven Market with AI that you've just talked about and so um I I wouldn't be so Keen I guess on uh correlating uh 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 bottomup valuation method or just I guess look at the technicals and ride the momentum but when you look at valuations and all the arguments right now that this Market might be overvalued things might be overpriced here do you find I guess Credence to that oh I think so I I mean it depends upon uh which um multiple which PE multiple you use whether it's the 10year cape as as they call it or whether it's the the immediate expectation for the next 12 months in any case it's um historically high or close to historically high at 21 22 times for a PE and so uh to my way of thinking if the economy slows and I think it's slowing uh we don't need a recession but if the economy slows and earnings growth fails to meet expectations I I think there's a problem in terms of valuation at the moment for many stocks many stocks well that does that mean 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 um but I'd be comfortable in taking a specific um you know bet and and uh uh investment in certain areas which are still very attractive I know that's the standard explanation that uh uh 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 in many stocks uhp and the NASDAQ well um let's talk about a few I I've owned uh for a long time and have recommended for a long time U master limited Partnerships for pipelines um these are stocks these are Partnerships and because of that they can't be bought by municip uh by uh basically by the market by mutual funds and uh so it's a narrow Universe these are stocks like uh energy transfer uh ET as a symbol like mplx um Marathon uh pipeline which is uh the symbol there you know they yield between 8 and 8 and a half% and there's one that I love I actually love um W Western pipeline yields about 95% these uh yields are basically utility yields their take or pay type of contracts they defer because they're Partnerships they defer taxes on their dividends and so it's a it's a huge you know and uh it's a huge uh attraction to me in terms of yield and potential price appreciation and they're all close to the top uh of their 12-month highs along the same lines you mentioned utilities utilities continue to sort of outperform and a large part of that are Power Players like istra or Constellation Energy and that's definitely related to the AI play do you buy into that kind of hype yeah I I think so I I own some NE which is the next uh energy um and I I think there's a correlation there between interest rates and between um you know the price of the stock so um I think in certain areas I think utilities as a whole have sort of been overblown in terms of their move relative to uh AI AR artificial intelligence and the uh the fact that they use more energy but um you know there are certain stocks there NE is one of them that I like what about uh Banks right now uh bill there's been a lot of talk here about financials and this idea that uh 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 I I've bought some regionals today um and I do think um you know they're they're down 10 or 15% from their peaks and so that's one positive going forward U many of them yield five to 5 a half% I bought this morning uh you know Key Bank uh Ki um yields close to 6% and um you know it seems to me that the commercial real estate problem has been reserved against for the most part and so um KY or truest TFC or um citizens CFG you know to my way thinking are very attractive Investments for a for the immediate to longterm I am curious on the point though of commercial real estate there's been so much hand ringing right now about the next shoe to drop the idea that we haven't really worked oursel through uh the C crisis or whatever we want to call it here you're not worried that we're going to see any sort of major uh defaults or at least not major enough that it would really rattle the market well I think it's dependent upon the economy if we uh get a decent recession then obviously um you know commercial uh real estate loans are less attractive than they are at the moment so um watch the economy um as I pointed out before I I think in many cases they've these regionals have had a year or two years to Res Reserve against the potential for you know additional losses um it it's just you know they traded pees around nine they traded uh Price to Book values of 7 or8 uh relative to something like uh JPM and so um you know I like them for the the long term hey Bill one of the big news items that really moved markets over the last 24 hours is what we saw over with the Parliamentary elections and macron calling for uh legislative elections uh at the end of June early July the market moved quite sturdily here the Euro hit a one month low you got a pop in yields the btp bun spread really blew out you got a weakness in the equity Market over in France in particular what did you make of the market reaction to what we saw well I I think it's to be expected I I I think in terms of an attraction uh German tenure BNS and uh French oats uh the tenure there uh their spreads have narrowed significantly in the past month or two relative to treasuries um and today as well by eight or uh 10 basis points so there's there's coming a point where European bonds um are more attractive than treasury Bonds in my opinion where what European bonds would you be looking at Bill well I mentioned uh 10year buns uh 10e oats um uh Italian uh bonds as well has has um you know gained more traction in the past several weeks and certainly um after last night's snap election in France and it get 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 one of course in India uh 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 psyches 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 differences and the reaction to whoever wins in November will be Market moving yeah I I think so and in these cases that you mentioned these these uh prior elections in the last few weeks you know they've all moved right um and there's a certain um consequence to that but there's also um an element of uncertainty and uh 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 um uh the party that's dominating but uncertainty in terms of what their policies will be and I I think as we move to November and something becomes more clear in terms of uh who might or who might not win um the uncertainty plus uh the potential policy implications I think um you know could impact treasury's uh significantly yeah it going to be interesting to see uh your next uh investment Outlook post election uh to see what you have to say there and it's interesting to uh 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 runup in Nvidia do you find any sort of opportunity there that's to your liking do you think it's sustainable well I'm not a pro there but I I I would say that AI to my way of thinking has the potential to increase productivity in general uh across the US economy the question is by how much or if at all uh to the extent that it uh even increases productivity by half a percent I think it's significant in terms of economic growth so you know that's the bet um you know specific uh stocks I like Microsoft I have never uh been involved with Nvidia or um or Amazon or even Apple today for instance but uh Microsoft is my favorite other than that um you know it's a weight and watch type of uh 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 piece by piece a a US stamp collection on Friday and Saturday at Robert a seagull auction house now you you've sold your stamps before you are clearly a very well-known collector the some of the estimates though think this could bring in a record of something like $20 million bill what told you that this was the right time to sell in this kind of environment these stamps well I'm 80 years old and uh you know it's time to turn over to turn this over to uh some other future collectors and I also think uh you know a slight negative here is that stamp collecting has always been a function of uh kids and their collecting who later on become adults and uh you know wealthy adults um but in this case I don't think the kids are collecting stamps anymore they're more involved with their cell phones and their uh games but uh 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 are 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 are pretty uh pricey here but I was just looking through the I mean this is just an impressive collection obviously probably the star of that of course is one of the inverted jennies but I am curious like 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 and I want to be able to hold it and look at it no my my mother uh back in the 40s uh in the early 50s collected stamps in order to send me to college um I took those stamps to San Francisco uh in 1961 uh and tried to sell them they'd offer me nothing relative to the 3% on the face of the stamp so basically when I had some money uh 20 years ago I said she had the right idea but she bought the wrong stamps and so if I can apply uh bond market uh economic um you know terminology and philosophy to the Stamp Auction much like paintings have a have a provenance 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
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