Even after one of the most storied careers in financial markets, Bill Gross has a few surprises left.
For one, he’s been diagnosed with Asperger’s syndrome, the autism-spectrum disorder. Gross says he lived most of his life unaware of the condition and now believes it helps explain not only why he was such a successful investor for so long but also why he could, by his own admission, rub people the wrong way.
Gross, long one of the most vocal critics of post-crisis stimulus, now sounds like a near-convert to modern monetary theory. He says deflation poses a huge challenge for central banks, admires what Japan has done to revive its moribund economy and thinks the U.S. government should consider doubling the size of its deficit.
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And the billionaire and registered Republican agrees with Democratic Rep. Alexandria Ocasio-Cortez that the rich should pay more in taxes — if not quite the 70 per cent she’s proposing at the margin. It’s a “necessary evil” to correct the failings of American capitalism, Gross says, adding that if inequality persists there’ll be a “revolution at the ballot box.”
He even muses on who might inherit his onetime title of king of the bond market.
Gross, 74, shared the revelations in a 90-minute interview with Bloomberg Television at his office in Newport Beach, California. He touched on everything from recession risks to a recent round of golf with discount-brokerage pioneer Chuck Schwab as he counted down the hours to his official retirement. Friday will be his last as a portfolio manager with Janus Henderson Group Plc, the firm he joined in 2014.
It’s been 48 years since William Hunt Gross, an Ohio native, Duke University graduate, Navy veteran and blackjack whiz, started as an investment analyst at Pacific Mutual Life. He went on to co-found Pacific Investment Management Co. in 1974 and played the starring role as Pimco grew to become one of the world’s largest asset managers, overseeing more than US$2 trillion at its peak. His Pimco Total Return Fund so reliably beat its bond-market rivals that he was dubbed “the bond king.”
More recently, Gross has had less to celebrate. After feuding with his Pimco partners over strategy, succession and managerial control, Gross was ousted in 2014. His second act at Janus was a headline-making dud as poor returns spurred withdrawals. His three-decade marriage fell apart in a split so acrimonious it became fodder for tabloids thousands of miles away.
That’s a lot for anyone to take, let alone a portfolio manager responsible for hundreds of millions of dollars in client money. Yet Gross says he was able to maintain focus and doesn’t blame his personal ordeals for poor investment decisions.
“I’m an Asperger, and Aspergers can compartmentalize,” he said, revealing his diagnosis publicly for the first time. “They can operate in different universes without the other universes affecting them as much. Yeah, I had a nasty divorce, and I still had, you know, feelings about Pimco. But I think I did pretty well in compartmentalizing them. Not that I didn’t wake up in the middle of the night and start damning one side or the other. But when I came to work it was all business.”
The reason he failed to deliver better returns at Janus is much simpler: “I made some bad trades.”
Gross learned he has Asperger’s only after reading Michael Lewis’s “The Big Short.” In one passage, Lewis recounts the unusual characteristics of one of the book’s heroes, Michael Burry, a doctor-turned-investor who also was diagnosed with the condition as an adult. Gross recognized that he shared many of the same qualities and had similarly obsessive habits. He went to a psychiatrist, who confirmed the condition.
“It’s allowed me to stay at 30,000 feet as opposed to being on the ground,” Gross said, discussing why he thinks Asperger’s probably made him a better investor, if also infamously short-tempered. “That’s not necessarily good in terms of one-to-one. People think you’re angry or an a-hole or whatever. But it helps you to focus on the longer-term things without getting mixed up in the details.”
That’s the Bill Gross his former colleagues at Pimco will recognize. For years, they found him aloof, volatile and seemingly lacking in empathy. Symptoms of the disorder range widely, according to the Autistic Self Advocacy Network, and can include degrees of difficulty with social interactions and communication, as well as deeply focused thinking and a preference for consistency and order.
Gross kept his diagnosis a secret, sharing it with close friends, and dropping only one hint publicly. In a February 2016 blog post on investing, Gross speculated as to why he wasn’t included as a character in Lewis’s best-seller: “Perhaps I wasn’t addled enough like co-star hedge fund manager Michael Burry, who I share affection for and an affliction (and it’s not a glass eye).”
While Gross says he’s “sort of proud” of his condition because “it explains a lot about me,” he no longer believes it’s as much of an advantage professionally.
“The markets are substantially different today than they were when I started, more day-to-day, more robotic, more machine-dominated,” he said. “So it’s not a negative, but it’s probably not as much of a positive.”
As a bond-market investor, Gross had to have views on monetary and fiscal policy, and he shared them publicly in the investment outlooks he posted regularly on Pimco’s website and, later, on Janus’s. One consistent thread was a critique of budget deficits, zero percent interest rates and quantitative easing. He wrongly predicted they’d spark runaway inflation and hurt returns on stocks and bonds.
Now, Gross appears to be revisiting those views. Although he still believes low-rate policies destroy the risk-reward relationship in a market economy, he recognizes that the government and the Federal Reserve can work together to combat deflationary forces like America’s aging population and Amazon.com.
“Why can’t the government have a US$2-trillion deficit if the Fed is simply going to buy it, like they do in Japan?” Gross said. “Well, Jim Grant would say, ‘Mmm, it would be inflationary.’ But it hasn’t been. So, yeah, I would say Trump or the next president, whoever he or she is, could go to US$2 trillion, as long as the Fed was willing to accommodate.”
This clearly isn’t the Bill Gross of 2012, who declared the “cult of equity” dead and predicted an “age of inflation.” He describes his politics as increasingly liberal, and he jokes that he re-registered as a Republican just to pass muster at his country club.
Gross believes tax rates on high earners need to be raised to restore balance in American capitalism and fund benefits for the middle class, such as access to affordable health care. That’s why he’s sympathetic to Ocasio-Cortez, the congressional freshman who has energized the left wing of the Democratic Party, even if he doesn’t agree with all her ideas.
“Maybe the next time, the next election, there will be a ‘socialist’ in the White House,” he said. “The wealthy have been advantaged for a long time and certainly the past few years with the tax cuts. The middle class hasn’t necessarily suffered, but the gap has increased.”
The question is how heavy the tax burden should be. Other billionaires, such as Oaktree Capital Group LLC’s Howard Marks, have warned against the consequences of “confiscatory taxes.” Gross says a top marginal rate of 70 per cent — the number floated by Ocasio-Cortez — would be too high.
“I just think Trump took it too far,” he said.
Gross himself has a fortune the Bloomberg Billionaires Index estimates at US$1.4 billion. He plans to manage that money and the US$500 million in his foundation as a one-man family office. Gross said he’ll do so “conservatively,” investing in closed-end funds and municipal bonds and continuing with one of his favourite trades, selling options on market volatility.
His routine, if all goes according to plan, will have him starting at 6:30 or 7 a.m., keeping at it for two or three hours, and then playing a round of golf.
Gross said he wants to be remembered for investing clients’ savings profitably and helping to build a “wealth-creating machine” at Pimco. That leaves only one question: Will there be another bond market king?
Probably not, according to Gross. One reason is the proliferation of passive investment vehicles. Anyone who claims to be a king of index funds is “just a puppet because the market is making the decisions.” Gross volunteered that he wouldn’t pick Jeffrey Gundlach, the chief executive officer and co-founder of DoubleLine Capital who’s frequently cited as the new king. If anyone, he said it might be Scott Minerd, the chief investment officer at Guggenheim Partners, in part because of his “great long-term perspective.”
“In the right environment, 20 years ago, he could have been a bond king,” Gross said. “But I don’t think he’s got the market or maybe the willingness to be a king. Who would? Well, I guess I did. In retrospect it carries a certain burden. The crown is heavy.”