Pimco's Bill Gross© Jason Reed / Reuters
Bill Gross, the man who once steered away from U.S. government bonds over concerns about the country's poor fiscal health, has been having second thoughts about bonds recently: In fact, in his most recent monthly report from Pacific Investment Management Co., or Pimco, he sees U.S. Treasury bonds as one of the best investment solutions for these troubled times.
"In bond market space, the favourite strategy will be to locate the cleanest dirty shirts – the United States, Canada, United Kingdom and Australia at the moment – and focus on a consistent, 'extended period of time' policy rate that allows two- to ten-year maturities to roll down a near perpetually steep yield curve to produce capital gains and total returns which exceed stingy, financially repressive coupons. A 1 per cent five-year Treasury yield, for instance, produces a 2 per cent return when held for 12 months under such conditions."
Two per cent? Yes, Mr. Gross has become so skeptical of the global investing scene that such a measly return looks good relative to what might be found elsewhere. He argues that Europe's problems "are global and secular in nature, reflecting worldwide delevering and growth dynamics that began in 2008. It will be years before Euroland, the United States, Japan and developed nations in total can constructively escape from their straitjacket of high debt and low growth."
Amid this sort of backdrop, he says, if you can get a 5 per cent return from stocks or bonds, you're a hero.
Mr. Gross has been struggling recently with his own reputation as an investing guru. His ill-timed move away from U.S. government bonds this year, at a time when investors flocked to the assets as safe-haven investments, has cost him dearly. He issued a mea culpa of sorts in October after his Pimco Total Return fund lagged the vast majority of its peers.
David Berman