By Ian McKendry
WASHINGTON (MNI) – Bill Gross, head of bond giant PIMCO, warned
Friday that a technical default by the U.S. government on its debt would
send the wrong signal to credit markets and that while it may not be a
negative for U.S. Treasury securities, it would be terrible for the
dollar.
“I simply think a default of six, twelve days, eighteen days, not
only sends the wrong signal, but a disastrous signal to the world credit
markets,” Gross said on CNBC Friday.
“It would result in not necessarily a negative for Treasury bonds,
but a disastrous implication for the dollar,” Gross added.
Gross said if the dollar was defaulted on, investors might start to
hold euros, yen, or the Chinese yuan instead. He also said countries
like Brazil, Canada and Germany would do better because they are not
technically defaulting.
Gross said while it is obvious that both Democrats and Republicans
want to reduce the deficit, he does not think legislation will happen
until 2012.
“It’s probably a few years away and debt holders will simply have
to adjust to that stretch of timespan,” Gross said.
“As we approach 2012 perhaps higher yields are the result, but I
don’t see a panic, I’d simply sense that unless we get something done
over the next several years we are in a real mess,” Gross added.
Gross also said blue chip stocks are more appealing than
Treasuries
in terms of real yields and real interest rates.
He noted that stocks like Coca-Cola and Procter and Gamble offer
dividend yields close to 2% with inflation protection while the U.S.
Treasury’s 10-year TIPS — which also offers inflation protection — is
yielding around 0.5%.
“On that standpoint alone I think stocks relative Treasury’s are a
much more attractive alternative,” Gross said.
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,M$$FI$,MN$FX$,MFU$$$]
