"It's obvious that the programs in the United States, the Federal Reserve buyback programs ... those purchases and that purchasing power will cease within the next three to four months," Gross told CBC News Network.Translated: Less demand for US Treasuries means interest rates will go up. Higher rates mean bonds and bond funds will lose some value. If rates go up a lot, perhaps due to high inflation or a dollar that continues to lose value, then foreign investors will be less inclined to purchase our debt, further pushing rates higher.
"So, to the extent that that's gone, then perhaps the upward influence in terms of those longer-term Treasuries will be felt more strongly in the next several quarters."
"There's substantial excess capacity not just in terms of production but certainly in terms of employment," he said.IF I thought inflation would hold between zero and one percent for the next three years, then I'd believe US Treasuries, GNMA bonds and bond funds not indexed to inflation look like a good investment.
"That excess capacity will reduce the potential for inflation. We see inflation at zero to 1 percent for a number of years going forward."
"The emerging world, whether it's in Asia, Australia or other associated countries, will do much better from the standpoint of growth, and that's where money should eventually move to. It moves there because of higher profits and it moves there actually because of higher real interest rates."
U.S. Treasury Rates for 10/27/09
| TERM | MATURITY DATE | CURRENT PRICE/YIELD |
| 3-Month | 01/28/2010 | 0.07 / .07 |
| 6-Month | 04/29/2010 | 0.17 / .18 |
| 12-Month | 10/21/2010 | 0.38 / .39 |
| 2-Year | 09/30/2011 | 99-31+ / 1.01 |
| 3-Year | 10/15/2012 | 99-12+ / 1.58 |
| 5-Year | 09/30/2014 | 99-17½ / 2.47 |
| 7-Year | 09/30/2016 | 99-05½ / 3.13 |
| 10-Year | 08/15/2019 | 100-23 / 3.54 |
| 30-Year | 08/15/2039 | 102-11+ / 4.36 |
I bought Intel for my personal account at a split adjusted price of $3.67 back in April 1993, 16.5 years ago. Today's dividend of $0.56 is like getting 15.3% on my original purchase. Unlike a US Treasury bond that returns the original investment when it matures, Intel is worth 545% more than what I paid for it. That is why I buy good stocks in growth industries for long-term inflation protection you don't get with Treasuries.Stocks are dead for the rest of your life. That's the gist of my exclusive interview with the head of PIMCO Total Return -- the biggest bond fund you've never heard of...
Gross shared his economic outlook with me yesterday in an exclusive interview -- and he's not optimistic...
Gross saw the interview and e-mailed me. I replied by telling him that I had some questions about PIMCO and his views on economic prospects. I found his answers informative and insightful and he agreed to let me post on his economic outlook which is very grim for those who believe that stocks outperform bonds. In Gross's view, the current economic contraction is killing the animal spirits that drive risk taking and that's contributing to the death of equity capitalism as we've come to know it.and..
And in Gross's view, growth prospects are so dim that there is no point in owning stocks since common stock investors will not benefit when there's no economic growth. Moreover, they'll be last in line for any dividends that might be available.April 21, 2010 update: As it turns out, the S&P500 has nearly doubled off the bottom in the year since Bill Gross called for the "death of equities." Click the chart below to see the S&P500 between January 2009 and today.
click for full size image courtesy of stockcharts.com
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