Pimco’s Gross Says Global Economy, Markets at Risk in 2012
Jan. 12 (Bloomberg) -- Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., talks about the outlook for the global economy and financial markets in 2012. Gross also discusses his investment strategy and U.S. Treasuries. He speaks with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the global economy and financial markets are at risk in 2012, boosting the appeal of U.S. Treasuries.
“Banks should be eight-to-one or nine-to-one in terms of leverage,” Gross said in a Bloomberg Television interview with Trish Regan. “Right now, the system is an 18-times to 20-times overleveraged system, and that’s producing the risk in terms of tipping one way or the other.”
The $244 billion Total Return Fund (PTTRX) run by Gross increased its holdings of U.S. government debt in December to the highest level in 13 months, Pimco said yesterday. The fund’s proportion of U.S. government and Treasury debt climbed to 30 percent, from 23 percent in November, according to a statement on its website.
“For the moment, the U.S. Treasury is viewed as a safe haven,” Gross said. “Until we see some clear evidence in terms of where the world is going, reflation or deflation, then that’s a decent alternative. It allows you to get your money back. That’s how they are willing to pay and to accept low-interest rates as an insurance against a delevering credit event.”
Change in Outlook
Last week, Gross backed away from Pimco’s “new normal” outlook after lagging behind the majority of his peers during the biggest bond-market rally in nine years. The period of muted growth in developed economies, high unemployment and “relatively orderly” deleveraging that Mohamed El-Erian, who shares the title of chief investment officer with Gross, dubbed the new normal in the aftermath of the 2008 financial crisis is morphing into a world of credit and zero-bound interest-rate risk, Gross wrote in his monthly investment commentary released Jan. 4.
Pimco has been advising investors to buy U.S. Treasuries, long-term inflation-indexed U.S. debt, “high-quality” corporates, senior bank debt and municipal securities. The recommendations are a departure from Gross’s call last year, when he advised buying emerging-market debt and cautioned investors to stay away from the U.S., noting that growth would be higher in developing economies, while excessive borrowing would lead to inflation.
“We wouldn’t advocate 30-year Treasuries,” Newport Beach, California-based Gross said today, adding that five- and 10-year Treasuries are more attractive although their returns are not great. “We buy into the 2 percent recovery, and we expect in the first and second quarter for it to continue,” he said.
ECB Measures
The ECB acted last month to ensure banks have enough cash after yields on European sovereign bonds rose amid the region’s debt crisis. The Frankfurt-based bank offered a three-year longer-term refinancing operation from Dec. 21 to replace the one-year facility announced in October.
“These measures should ensure enhanced access of the banking sector to liquidity and facilitate the functioning of the euro-area money market,” ECB President Mario Draghi told reporters on Dec. 8.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Trish Regan in New York at Tregan8@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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