Global economies increasingly at risk -Pimco's Gross

Reuters

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 U.S.mutual 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.

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