The world's biggest bond fund manager, Pimco's Bill Gross, has denounced the US economy as being jus...
The world's biggest bond fund manager, Pimco's Bill Gross, has denounced the US economy as being just another Ponzi scheme.
Writing in his latest investment blog, Gross says although Bernard Madoff will be the fall-guy for this generation, he adds there are many more schemes like his propping up the US system.
"We have met Mr. Ponzi and he is us - all of us: auto companies that siphoned sales dollars to make labour peace instead of research and design expenditures; hedge funds that preposterously billed investors for 2% and 20% of nothing; a President and politicians who thought they could fight a phony war for free and distract the nation's attention from $40trn of future social security and health care liabilities. Ponzi, Ponzi, Ponzi."
He takes direct aim at the mortgage market and those ratings companies that helped to allow the subprime mortgage crisis to come about.
He also questions the current solution to these problems - government bailouts.
Gross says the positives and negatives of throwing money at the problem, in a form similar to the New Deal, will continue to be debated into 2009.
However, as this seems to be the most likely outcome, the manager recommends investors pay close attention to Treasury bonds and high-quality investment-grade corporate bonds.
"An Obama administration will quickly be confronted by the need to provide those hundreds of billions of dollars to states and large municipalities. Their requests total nearly a trillion dollars and to think California or NYC would be allowed to fail is, well - unthinkable.
"Municipal bonds then, selling at historically high ratios relative to US Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2.5% 10-year Treasury cannot," adds Gross.
"As an additional strategy, global bond investors should recognize the value in high-quality investment-grade corporate bonds in many markets. Yields of 6%+ for intermediate maturities are still common and readily available."
