In his new monthly letter to investors, PIMCO’s founder and co-chief investment officer Bill Gross, wrote that central bank policies in 2012 will incite growth in developed countries but in the future, start inflationary risks.
Gross said in reference to the Federal Reserve’s debt purchases (also known as QE), “Not suddenly, but over time, gradually higher rates of inflation should be the result of QE policies and zero-bound yields that will likely continue for years to come.”
From his outlook released on the company’s website , “Tuesday Never Comes,” Gross emphasized that central bank policies have produced an “ocean” of credit. He specifically referred to the Federal Reserve by saying the United States’ central bankers seem to think that markets will buy Treasuries in the future at low yields “because the private market’s ‘stock’ of Treasuries has been depleted” according to Reuters.
Gross’ latest investment outlook hasn’t really differed from his either previous monthly investor letters or recent comments that have been made by him on television appearances.
So what should investors do at this time? He again said they should look at bonds “in the five-year range” and stocks paying dividends between three to four percent. He also suggested real assets and commodities.
Gross further expressed his doubts on central bankers in the paper. He said, “In 2008, central bankers never really knew how much debt was out there, and to be honest, they don’t know now.”
Using an analogy to additionally explain his thoughts, he utilized the following analogy. He compared the Fed’s efforts to encourage demand for Treasuries to wine drinkers who sip “rare vintages” but their wine cellars are almost bare. Gross further explained that it’s the Fed’s aspiration that other “wine lovers will now be forced to restock their cellars to get a historically comfortable inventory.”
In case you’re wondering, Gross, who manages the world’s biggest bond fund, the PIMCO Total Return Fund (PMBIX.O), said his drink of choice is beer as opposed to wine.