Bill Gross Reflects on Euro Crisis; Will Be 'Many Years' Before Developed Nations Reduce Debt
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Bill Gross believes if there is one thing investors can takeaway from the past few years of turmoil it's “that debt driven growth is a flawed business model when financial markets and society no longer have an appetite for it.”
The co-founder of PIMCO highlighted the fact that investors need to understand issues in Euroland are both global and secular in nature. He believes it will be many years before the Eurozone and other developed nations can rid themselves of substantially large sums of debt.
Gross said, “Proposals from the German/French axis in the last few days have heartened risk markets under the assumption that fiscal union anchored by a smaller number of less debt-laden core countries will finally allow the ECB to cap yields in Italy and Spain and encourage private investors to once again reengage Euroland bond markets. To do so, the ECB would have to affirm its intent via language or stepped up daily purchases of peripheral debt on the order of five billion Euros or more. The next few days or weeks will shed more light on the possibility, but bondholders have imposed a “no trust zone” on policymaker flyovers recently. Any plan that involves an “all-in” commitment from the ECB will require a strong hand indeed.”
Gross expects interest rates to remain low as global growth will likely be flat for some time. Gross also anticipates investors to continue to be disappointed at returns which do not meet expectations.
For a larger return -- implying more risk -- Gross recommends investors consider buying assets in emerging economies, for example Brazil or Asia. For a safer and more long-term risk, he encourages investors to buy bonds in developed countries where the yield curve offers the potential for capital gain and higher total returns. With economic growth likely slowing in 2012, bond investors ought to look for high quality corporate over lower.
The U.S dollar is expected to stay strong, Gross said, effectively having negative implications for the country.
The co-founder of PIMCO highlighted the fact that investors need to understand issues in Euroland are both global and secular in nature. He believes it will be many years before the Eurozone and other developed nations can rid themselves of substantially large sums of debt.
Gross said, “Proposals from the German/French axis in the last few days have heartened risk markets under the assumption that fiscal union anchored by a smaller number of less debt-laden core countries will finally allow the ECB to cap yields in Italy and Spain and encourage private investors to once again reengage Euroland bond markets. To do so, the ECB would have to affirm its intent via language or stepped up daily purchases of peripheral debt on the order of five billion Euros or more. The next few days or weeks will shed more light on the possibility, but bondholders have imposed a “no trust zone” on policymaker flyovers recently. Any plan that involves an “all-in” commitment from the ECB will require a strong hand indeed.”
Gross expects interest rates to remain low as global growth will likely be flat for some time. Gross also anticipates investors to continue to be disappointed at returns which do not meet expectations.
For a larger return -- implying more risk -- Gross recommends investors consider buying assets in emerging economies, for example Brazil or Asia. For a safer and more long-term risk, he encourages investors to buy bonds in developed countries where the yield curve offers the potential for capital gain and higher total returns. With economic growth likely slowing in 2012, bond investors ought to look for high quality corporate over lower.
The U.S dollar is expected to stay strong, Gross said, effectively having negative implications for the country.
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William H. Gross, Pacific Investment Management Company, LLC (PIMCO)Sign up for StreetInsider Free!
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