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By Morningstar.com | 06-19-2014 12:00 PM

Gross: Economy Can't Survive Much Higher Rates

During his keynote presentation at the Morningstar Investment Conference, the PIMCO manager made the case that high debt levels and a need for financial stability mean that central banks should keep real rates close to zero for some time.

Bill Gross: I'd put these [sunglasses] on this morning. Actually when you're 70 years old, you need things. You need props. Even guys need a little makeup and stuff. And so I put these on, as I was getting dressed, and I said, man, that's a pretty cool-looking dude.

I said, I need at least one moment to see myself on the big screen. So, there I sort of am. I can't see my notes, and I'm not really Hollywood so. But there you go.

I'm 70 and been moving on as they say.

Well thanks for having me. Thanks for being here. Boy, it's impressive from this vantage point, a lot of people and a lot of listeners. I appreciate the chance to talk to you about a few things, about investing and about movies, which I'll mention in just a second. And thank you, [Morningstar's Don Phillips] for the kind introduction. I wasn't really sure what Don would say about me. According to the recent buzz, it could've been something about General George Patton maybe berating a wounded soldier. Or a Wall Street version of Justin Bieber. Or maybe just a Kim Kardashian impersonator, if you wanted to hear about my feminine side, which I'm sure you don't.

In any case, if you really wanted to know about me, just ask [Morningstar's] Eric Jacobson here at the front table because I've told him a hundred times over the last few months exactly what a great guy I am, and he should be able to tell you, as well. It should've sunk in by now. It sort of reminds me of a movie. It is a movie called "The Manchurian Candidate," and there've been two, most recently with Denzel Washington, but the first one with Frank Sinatra and Laurence Harvey. You guys are too young to probably remember this movie, but it was a movie about hypnotizing American soldiers in North Korea during the Korean War. The North Korean's capture eight American soldiers, and they hypnotized them into repeating to the public when they got home to America, that their autocratic Captain Shaw as he was called--played by Laurence Harvey--as the kindest, warmest, most wonderful human being they'd ever known in their lives. And they would repeat that for hours and hours when they went back to the American public and because of this, the public eventually grew to love Captain Shaw, someone whose image resembled, I guess, like the future Ronald Reagan or somebody similar I guess. A real nice guy.

And Captain Shaw eventually ran for the vice presidency and things went on, you don't need to know the rest of the story, you probably know what happened. But I remember The Manchurian Candidate, and we're talking about image here, and who am I and who do you think I am. And so as a goodwill gesture, I'd thought that I'd invite reporters from The Wall Street Journal, Bloomberg, The Financial Times, The New York Times, and Reuters--and not to leave any of you out--but I'd invite you to Newport Beach, California, for a round of Texas Hold 'Em. And we'll flop the cards and hopefully there'll be a pair of red queens on the flop just like there was with "The Manchurian Candidate," and I'll say to the reporters, "Now repeat after me, 'Bill Gross is the kindest, bravest, warmest most wonderful human being you've ever met in your life.'"

Hopefully that'll work, maybe not, but I thought to be fair, I should take, and I've already taken some self-help courses in hypnotism and I've trained myself. So that when I see a red queen, just like they did in "The Manchurian Candidate," and when I play Solitaire, I repeat the same phrase, but with a twist. I say, "Reporters are the kindest, bravest, warmest most wonderful human beings, I've ever met in my life." So, playing cards, it seems, can be a great therapy, and I've never been happier at work.

Now, we have a new deputy chief investment officer structure, with six of them. That's working fabulously. We've got a new CEO and president, Doug Hodge and Jay Jacobs, exceeding expectations, and we just moved into a new building three weeks ago. If there's a happier kingdom on earth, it may be 15 miles up the Santa Monica Freeway at Disneyland, but that's a fantasy. And I'm talking real time here. We're having a good time and we're a happy kingdom at Newport Beach.

Let me move on, and for those of you that would like to have a memento of those red queens, I've got a surprise in my pocket, perhaps some of you after this speech can come up and I'll give you one of them. But let me now move to more critical investment-related topics, not cards.

Yes, this is my time to sort of commercialize, so bear with me, but I think, hopefully I can give you a sense of who we are and what makes sense in the investment markets and what has made sense for the past 20, 30 or 40 years. I hope there's some information to be gleaned from this so you just won't think I'm doing PIMCO bragging. But let me start out and talk about the Total Return fund, and why I think it's been successful over such a long time because that really speaks to PIMCO.

To me, the Total Return fund has been a Mercedes, not a Model T, not a Cadillac. It's a Mercedes. You ride in comfort, you ride with style, and you ride with the expectation that you'll get to your destination in the future. And maybe even the Total Return in the future, we like to think of it as the new Google car, I guess, in which, yes, you know, you're still going to drive it, you're still going to actively manage it. But it'll be well-engineered; it'll be safe. It'll give you exactly what you want. The Total Return fund will never be a compact car. It hasn't been for the last 20 years for sure. It's $230 billion and was, as we know, $280 billion, just a short 12 months ago. It's the world's largest bond mutual fund, and maybe depending upon where the Vanguard Equity Index fund is, [Total Return is] maybe the biggest [fund of any kind in the world]. But it's a big one. So, it's not a compact car, but it does what a customer wants it to do and that's to outperform with less risk on a consistent basis.

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