Tags: Pimco | Gross | fed | ecb

Pimco's Gross: Want to Make Money? Front-run the Central Banks

Wednesday, 26 Sep 2012 04:41 PM

Investors should buy Spanish and Italian debt or, in the U.S., they should look for mortgage-backed securities, as central banks are about to snap up such assets, said Bill Gross, founder of Pimco, manager of the world's largest bond fund.

The Fed has said it will spend $40 billion a month buying mortgage-backed securities from banks, a monetary stimulus tool known as quantitative easing that pumps liquidity into the financial system to spur recovery.

The European Central Bank has unveiled a program to buy sovereign debt carrying maturities of up to three years, and though no countries have yet to ask for such assistance, Spain and Italy are widely expected to become beneficiary countries soon, Spain especially.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

So investors should get in front of U.S. and European central banks now before they start throwing money around snapping up assets.

“We continue to anticipate what the Fed is buying,” Gross told CNBC.

“It pays to own these mortgages even though they’re overvalued,” Gross added.

European policymakers are ready to move as well.

“They told us they are going to buy Spanish and Italian 1- to 3-year debt should those countries apply for a rescue,” Gross said.

Expect European countries to tap the European Central Bank's bond-buying program in a matter of weeks, so investors need to act now.

“You want to buy them before they do.”

While both the Federal Reserve and the European Central Bank have moved to prop up their respective economies with monetary stimulus measures, officials from both institutions have insisted that fiscal policies are needed to pay down debts, narrow deficits and get growth rates really moving again.

European Central Bank President Mario Draghi has said that even though markets are up on approval of the bank's bond-buying program, governments and households alike must do their part to improve the economy.

"The current improvement in sentiment does not mean everything is solved," Draghi said in public recently, according to Reuters.

"The ECB's action can only be the bridge to the future. The project must be completed through decisive actions by governments both individually and collectively."

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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Investors should buy Spanish and Italian debt or, in the U.S., they should look for mortgage-backed securities, as central banks are about to snap up such assets, says Bill Gross of Pimco.
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Wednesday, 26 Sep 2012 04:41 PM
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