Bloomberg News

Gross Favors Safe Sovereigns With Risk of Recession Rising

October 04, 2011

(Adds comment from Gross in third paragraph.)

Oct. 4 (Bloomberg) -- Bill Gross, the manager of the world’s biggest bond fund, said that he favors investing in so- called safe sovereign debt of nations that have the ability to raise monetary stimulus as the risk of recession increases.

Debt of the U.S., Germany, the U.K., Australia, France and Canada are attractive, Gross, founder of Pacific Investment Management Co., said today in a Bloomberg Television interview with Lisa Murphy. The odds of recession in developed economies is about 50 percent, with the U.S. on the “brink” and the euro-region already experiencing negative growth, he said.

“Markets these days give mild signs of a collapse,” Gross said. “This is one of those times where you are worried about the return of your money.”

The global economy risks lapsing into recession with the pace of growth falling below the “new normal” level the firm has predicted since 2009, Gross said in a monthly outlook posted on Newport Beach, California-based Pimco’s website yesterday. Pimco predicted after 2008 market collapse that the U.S. economy would grow at a below-average pace for several years as unemployment stayed elevated and the “heavy hand of government” would be evident in markets.

“You want to look for countries with relatively clean balance sheets, with AAA types of ratings, and with the ability importantly to print money,” Gross said.

‘Few Options’

Federal Reserve Chairman Ben S. Bernanke said today that the central bank stands ready to take additional steps to boost U.S. growth and cautioned lawmakers against budget moves that would harm a “sluggish” recovery signaling the Fed may not be finished after attempts in August and September to strengthen record monetary stimulus with unconventional tools.

Bernanke “knows that there are very few options that he has as Fed chairman going forward,” said Gross. The Fed and the European Central bank should work to increase the amount of credit available in the economy to go along with their efforts to decrease the cost of credit, he said.

“The private sector is delevering and the Fed should match that delevering with a check of their own,” Gross said.

After eliminating Treasuries from his $242 billion Total Return Fund in February because they were too expensive, Gross increased his holdings in U.S. government securities to 16 percent as the debt posted the highest quarterly returns in almost three years. Treasuries gained 6.4 percent in the third quarter as investors sought refuge amid slowing growth and Europe’s sovereign-debt crisis, Bank of America Merrill Lynch indexes show.

The Total Return Fund has returned 0.95 percent in the past year, beating 18 percent of its peers, according to data compiled by Bloomberg. Over the past five years, the fund has returned 7.8 percent on average, topping 97 percent of rival funds.

--Editor: Dave Liedtka, Paul Cox

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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