America’s ‘bond king’, Bill Gross, is so worried about bonds that he’s looking to invest in stocks and gold instead. In a recent CNBC interview, the co-founder of Pimco, the world’s biggest bond fund, said that both stocks and US Treasuries are ‘a bubble’.
‘High prices for both are a function of the Fed writing cheques of hundreds of billions of dollars.’ Gross says he prefers stocks – especially high quality shares with yields of at least 3%. ‘In terms of yields, those types of stocks are giving you a lot more than ten-year Treasuries.’
Even more attractive though, says Gross, is gold. Throughout his career the 68-year-old investor has never been too bullish on gold. But Gross says that the massive quantitative easing (QE) programmes taking place around the world leave him with no other choice.
‘In the immediate future it’s hard to know if the current gold price is the ‘right’ one”, says Gross. ‘But, given the negative real interest rates you get for holding the dollar, gold is the favoured alternative.’ It’s all about preserving the real value of your wealth, says Gross. ‘For those investors who are looking to protect themselves from inflation then gold is a serious hedge.’
Gross also batted off speculation in the American press that the gold price would fall if Mitt Romney – who has promised to sack “money-printing” Fed chairman Ben Bernanke – wins next month’s presidential elections. ‘The Republican party has never really favoured tight money. Neither party has. Unfortunately I don’t see either nominee bringing new ideas or making radical changes that would affect the market.’
Gross also warns that the US shouldn’t take the dollar’s status as the world’s reserve currency for granted. He feels that constant QE will eventually undermine the currency. ‘Of course the world uses the dollar for most transactions.
But at the end of every transaction traders and companies want to make sure that the dollar does not depreciate, or is earning an interest rate that compensates for inflation. Therefore lower interest rates and higher inflation threaten reserve currency status.’
Urging the American audience against complacency, he reminded viewers that the fall of sterling in the early part of the 20th century showed that ‘the dollar does not have an unlimited franchise as the world’s reserve currency.’
James McKeigue
Contributing Editor, Money Morning
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