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Pimco's Bill Gross has been grossly off

Posted by: Aaron Pressman on June 13, 2007

The bond market has been in a serious funk of late, with yields on the 10-year Treasury note hitting a five-year high yesterday. There are any variety of explanations floating around out there, including a growing realization that the Fed isn’t close to cutting its target rate, rumors of less demand from China and, my personal favorite, the prouncements of Bill Gross, manager of the world’s biggest bond fund, that Treasuries are headed for a bear market. In an outlook for the $100 billion plus PIMCO Total Return Fund (Symbol: PTTAX), Gross recently raised his projected range for 10-year treasury yields to a high of 6.50% over the next few years.

Why am I so entertained by Gross’s predictions? Because if you look at Bill Gross’s track record as a market prognosticator, the reaction to the PIMCO don’s latest call should be hoots of laughter, not a panic to sell. In fact, for the past few years, you could have made plenty of dough betting on the opposite of whatever Big Bill said was about to happen.

It’s certainly not helping his fund, which has trailed 89% of similar funds in 2007, 90% over the past year and 57% over the past three, according to Morningstar. Even over the past 5 years, Gross is in the middle of the pack, ahead of 53%, trailing 47% of similar funds. Over 10 years, living on past glory, Gross remains in the upper echelon, ahead of 86% of his peers. And he’s trailed his benchmark, the Lehman Brothers Aggregate Index, over all of those periods.

Need some more history? Just look back to March, following a bit of a rally in the bond market, when Gross posted an outlook for his fund that said “PIMCO will maintain duration above the benchmark as we expect interest rates, especially on the shorter end of the curve, to fall in the face of relatively weak economy [sic] growth” and “PIMCO’s curve position will continue to emphasize shorter maturities that should gain as the market begins to anticipate Fed easing.”

Here’s a chart of the yields of the 10-year and 2-year Treasuries since Gross made those last market calls (with thanks to the St. Louis Fed’s fabulous FRED databank for the data):


Not much to write home about, huh? And this is the same Bill Gross who was prediciting that the Fed would start cutting interest rates since before they even stopped raising them last year. And a few years ago Gross was saying that 10-year Treasury bonds would be yielding 3%. More recently, Gross had some big misses like these:

“(T)he Fed will likely respond sometime within the next six months with a series of cuts intended to restimulate growth along with its key asset markets (primarily housing). - January, 1, 2007 commentary

“The U.S. bond bull market, which began almost two months ago, remains in its infancy…” - October 1, 2006 commentary

So next time you read about what Gross says or see him on CNBC, take a chill pill. And then considering going the other way.

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Reader Comments

Hugh Whitmore

July 24, 2007 04:52 PM

Bill Gross is a liar extrordinaire and a market manipulator of the first order. He makes faulty prognostications on purpose to play to his own advantage the short term move he helps to create. This crook should be investigated but the federal government is afraid of high profile people in media.

Fred Flinstone

August 17, 2007 07:13 PM

Whoops. After the 10-year fell to 4.60 and the Fed is cutting rates, it looks like Bill Gross was right after all! He just did not know when he would be right, but who ever does?


August 20, 2007 07:59 AM

Now, both Hugh Whitmore and Aaron Pressman - what have you got to say for yourselves ?

Read "Tough love on Wall Street" CNN Aug 20, 2007, especially Bill's remarks " understand the maze of financial structures that now appears to be unwinding. They were created by youthful financial engineers trained to exploit cheap money and leverage, who showed no fear and who have, until the past few weeks, never known the sting of the market's lash. "

You must be one of those greenhorns living it off your dad's or somebody's dad hands.

Denis Chan

August 29, 2007 12:08 PM

In general, Bill Gross has been underestimating
the behavior and impacts of world players and
aggregates of domestic bond traders other than PIMCO itself in the past 7 years. No single call from the manager of the largest fixed income fund in the world can tilt the real underlying dynamics of the bond market.


June 5, 2008 11:27 AM

Wowzer. Talk about an article that trashes a person and end up being proven completely wrong. I've never read an article which ends up being so spot on wrong. Aaron Pressman, you should really issue an apology to Mr. Gross for being just so wrong.


May 22, 2009 05:04 AM

It just shows how costly it is to one's reputation for writing useless contents.

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