Global economies increasingly at risk -Pimco's Gross


By Sam Forgione

NEW YORK, Dec 3 (Reuters) - Bill Gross, co-founder andco-chief investment officer of bond giant Pimco, said Tuesdaythat easy-money policies worldwide have put global economies andtheir capital markets increasingly at risk.

Gross, writing in his monthly letter to investors, saideasy-money policies from central banks such as the U.S. FederalReserve and the Bank of Japan have resulted in artificiallypriced assets and that markets could face peril once investorsrecognize the growing risk and sell traditional assets.

"Global economies and their artificially priced markets areincreasingly at risk," Gross said, adding that investors "areall playing the same dangerous game that depends on a nearperpetual policy of cheap financing and artificially lowinterest rates in a desperate gamble to promote growth."

Gross referred to the monetary stimulus policies of globalcentral banks including the Fed, Bank of Japan, European CentralBank, and Bank of England in the December outlook entitled "Onthe Wings of an Eagle" posted on Pimco's website.

He said that stocks, investment-grade and high-yield junkbonds, alternative assets, hedge funds, and unconstrainedproducts all reflected artificially priced markets and thatinvestors will "gradually vacate" historical asset classes oncethey recognize that they are receiving too little reward for toomuch risk.

Gross's comments are important because Pimco manages roughly$1.97 trillion and is one of the world's largest bond managers.The views of Gross and co-chief investment officer and chiefexecutive Mohamed El-Erian on global credit also influence otherinvestors.

The Newport Beach, California-based Pacific InvestmentManagement Co is a unit of European financial services companyAllianz SE.

The Fed is buying $85 billion in Treasuries and agencymortgages monthly in an effort to spur hiring and keep borrowingcosts low. The Fed's bond-buying has helped fuel record highsand a 26 percent rally in the Standard & Poor's 500 stockindex this year.

Gross has warned of "bubbles" or overpriced financialmarkets in past television appearances and posts on social mediaplatform Twitter.

On Nov. 29 or "Black Friday," the biggest U.S. shopping dayof the year, Gross wrote the following on Pimco's Twitteraccount, "Gross: We should call this 'Green Friday' - Becareful, though, of red numbers in 2014. All markets arebubbly."

In the letter, Gross reiterated that investors shouldanticipate stable policy rates until at least 2016 and focus onshort-duration assets.

Gross said: "Look for constant policy rates until at least2016. Front-end load portfolios. Don't fight central banks, butbe afraid."

The U.S. central bank has kept the federal funds rate nearzero since late 2008 to help the economy recover from recessionand has promised to keep it there for a while longer, probablyuntil 2015.

Pimco has not been immune to the volatility in the bondmarket this year.

Gross's flagship Pimco Total Return Fund had outflows of$3.7 billion in November, marking the seventh straight month ofoutflows from the fund and reducing the fund's assets to $244billion, data from Morningstar showed on Tuesday.

Pimco had outflows of $7.1 billion across all of its funds in November, marking the sixth straight month ofoutflows from the funds, according to Morningstar data.

Outflows in October stripped the Pimco Total Return Fund ofits status of the world's largest mutual fund, a title which TheVanguard Total Stock Market Index now holds, accordingto Morningstar data reported last month by Reuters.

The fund has had outflows of about $36.9 billion this year,according to Morningstar. Gross's fund delivered a flatperformance in November according to preliminary Morningstarfigures, averting losses even as fears surrounding the FederalReserve's next policy move hurt bond prices.

The fund is still down 1.24 percent this year, however,beating 57 percent of peers, according to Morningstar data.


View Comments (12)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Wondering How You Could Save on Home Insurance?

    Get a quote from Farmers Insurance and discover how you could save. Speak with an agent to get the knowledge you need to make an informed decision.

    AdChoicesFarmers InsuranceSponsored
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Only 4 states will see cuts to food stamps

    Cuts to the nation's food stamp program enacted this year are only affecting four states, far from the sweeping overhaul that Republicans had pushed, an Associated Press review has found. As a result, it's unclear whether the law will realize the estimated $8.6 billion in savings over 10 years that…

    Associated Press
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance59 mins ago
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • The New 2015 Sonata®: A Step Above the Competition

    There's a Sonata® that's perfect for you, and this is your chance to build it! Visit the Hyundai® Official Site to customize your 2015 Sonata® today!

  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Fed renews zero rate pledge, but hints at steeper rate hike path

    The Federal Reserve on Wednesday renewed its pledge to keep interest rates near zero for a "considerable time," but also indicated it could raise borrowing costs faster than expected when it starts moving. In a statement after a two-day meeting of its policy-setting Federal Open Market Committee,…

  • $40-Off Limited Time Offer From Norton

    Award-winning PC protection that doesn't slow you down. Easy installation & money-back guarantee. Download today with our $40-off limited time offer.

    AdChoicesNorton by SymantecSponsored
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…

  • Russian billionaire placed under house arrest

    A billionaire Russian tycoon was placed under house arrest Tuesday in a money-laundering case that has drawn comparisons with a government crackdown on Russia's Yukos oil company more than a decade ago. The Investigative Committee, Russia's top investigative agency, said that Vladimir Yevtushenkov,…

    Associated Press
  • A 2014 IIHS Top Safety Pick

    Advanced safety features are available on the new 2015 Mazda6. Your safety is our priority. Learn more about our safety features today!

    AdChoicesMazda USASponsored
  • Play

    Tues., Sept. 16: Watch Humana Stock

    Humana, Global X Social Media Index ETF and Majesco Entertainment are among stocks to watch. WSJ's Chris Dieterich discusses the details with Michael Casey. Photo: Humana

    WSJ Live