Tags: Pimco | Gross | Treasury | Haircut

Pimco’s Gross: Treasury Investors Will Get ‘Haircut’

Wednesday, 25 July 2012 07:33 AM

Pimco co-founder Bill Gross says investors looking to preserve their purchasing power should avoid Treasurys and instead invest in “real assets,” such as stocks and real estate.

“In the Treasury market all interest rates are on a negative basis,” Gross told CNBC. “Risk averse investors looking to hide in Treasurys will see a haircut relative to future inflation.”

Investors are being forced into riskier assets, such as stocks, high-yield bonds, real estate and gold, in order to maintain purchasing power, he said.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

“It doesn’t mean you should buy them,” Gross noted. “But if you want to maintain purchasing power, you have to make the leap into real asset territory to get a real return.”

Gross said if central bankers can successfully reflate their economies, then investors should be in “real assets that can appreciate with that successful reflation.”

If reflation does not happen, Gross expects investors will continue to want high-quality assets such as Treasurys in order to maintain their principal.

He also expects the Federal Reserve will issue more quantitative easing, but noted that “what they do will be substantially diluted to what they’ve done in the past.”

“With the five-year Treasury at 0.5 percent there’s little to do to lower rates,” he added. “They might ultimately have to go to negative rates.”

Yields on five-year to 30-year U.S. Treasurys fell to new lows, as more bad news out of Europe came out and worries about global economic growth drove investors toward the safety of U.S. debt, The Wall Street Journal reported.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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Wednesday, 25 July 2012 07:33 AM
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