Tags: Fink | Gross | Debt Default | Standoff

Fink, Gross See Zero Chance of US Debt Default Amid Standoff

Friday, 04 October 2013 10:32 AM

BlackRock Inc.’s Laurence D. Fink and Pacific Investment Management Co.’s Bill Gross said the U.S. budget standoff will be resolved without a debt default.

The congressional dispute will end “very rapidly,” Fink said at an event hosted by the UCLA Anderson School of Management at the Beverly Hilton hotel in Beverly Hills, California, and streamed on CNBC.com.

“It’s theatrics posed by politicians to get ratings or to get their way via legislation,” Gross said. “It’s not a realistic proposition.”

The stalemate between congressional Republicans and Democrats has led to a partial government shutdown this week and risks a U.S. debt default. The government will run out of borrowing authority Oct. 17, according to the Treasury Department, which said a default caused by Congress failing to raise the $16.7 trillion federal debt limit could have catastrophic consequences that might last decades.

The yield on the 10-year U.S. Treasury touched a seven-week low and the Standard & Poor’s 500 Index fell the most in a month as the budget deadlock persisted into a third day.

The two fund company executives, whose firms oversee more than $5.8 trillion in combined assets, are both alumni of the Anderson School. Both said the U.S. is the best place to invest. Gross added that he wouldn’t take undue risks on higher-yield assets.

‘Invest Carefully’

“I’d invest carefully and relatively short term and sacrifice the potentially higher yield,” said Gross, 69, who started Newport Beach, California-based Pimco in 1971 with two other co-founders and is co-chief investment officer with Chief Executive Officer Mohamed El-Erian.

Interest rates will be low for the next two or three years, he said.

“We live in a world of artificially compressed interest rates, and therefore artificially compressed returns,” Gross said.

The advantage that emerging markets had in terms of low labor costs is diminishing, said Fink, 60, who co-founded New York-based BlackRock in 1988 and as CEO has built it into the largest money manager, with $3.86 trillion in assets as of June 30. North America is gaining a manufacturing edge because of low energy costs, he said.

Mexican President Enrique Pena Nieto’s decision to open up his country’s national oil monopoly will lead to an investment boom there, Fink said.

“Certainly Mexico is at the beginning of a real revolution,” he said.

Mortgage Dispute

At one point, Fink and Gross had questions shouted at them by two audience members, one of whom identified himself as a representative of the Service Employees International Union. The two challenged the pair over BlackRock and Pimco seeking a court order blocking Richmond, California, from seizing mortgages through the legal process known as eminent domain so that the occupants can have their delinquent loans restructured. The hecklers were escorted from the room.

“The use of eminent domain for mortgages instead of real property is questionable,” Fink said. “It’s breaking quite a bit of what we would consider contract law. We’ll go to court and see who’s right.”

Gross said more regulation and higher taxes may be needed to address wage inequalities that have created animosity between Main Street and corporate America.

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BlackRock Inc.'s Laurence D. Fink and Pacific Investment Management Co.'s Bill Gross said the U.S. budget standoff will be resolved without a debt default.
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Friday, 04 October 2013 10:32 AM
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