Tags: pimco | Gross | Debt | Risk

Bill Gross: Public Debt Will Force Investors Into Risk

Friday, 30 March 2012 08:08 AM

Financial repression — the government maneuver of keeping interest rates below the inflation rate in order to dodge debt — means that investors would be wise to put money into risk assets now, says Bill Gross, founder and co-chief investment officer of bond giant Pimco.

It is important to “recognize that investors are locked up in a financially repressive environment that reduces future returns for all financial assets,” Gross writes in a recent commentary.

“In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2 percent to 3 percent as offered by Treasury bills, then you must take risk in some form,” he told clients.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

The “delevering” of the global debt load continues, most conspicuously in Europe, but “the total amount of debt however is daunting and continued credit expansion will produce accelerating global inflation and slower growth in Pimco’s most likely outcome,” Gross contends.

In that scenario, “financial assets relative to real assets outperform. . . as wealth is brought forward and stolen from future years if real growth cannot replicate historical total returns.”

Pimco thus recommends short and inflation-protected bonds but also dividend stocks and commodities in short supply, Gross writes.

Austerity in Europe is indeed having an impact now, according to the OECD.

The Paris group sees U.S. growth at 2.9 percent in the first quarter and 2.8 percent in the second, while total growth for the Group of Seven largest economies will be 1.9 percent.

"There is a recovery which is firming with respect to past numbers. But it is clearly coming at different speeds, with North America and the United States growing faster and the euro area still in a weak spot," OECD chief economist Pier Carlo Padoan told reporters.

Editor's Note:
Obama Donor Banned This Video But You Can Watch it Here

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