The World According to Pimco's Bill Gross

Brian Hicks

Updated July 20, 2009



bill gross


Here’s a look at the world according to bond guru Bill Gross.

A founding member of the “new normal” camp, Gross is erring on the side of caution these days by adding to his cash position.

From Bloomberg by Wes Goodman and Dakin Campbell entitled: Pimco’s Gross Reduces Mortgage Holdings, Adds to Cash

“Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., reduced holdings of mortgage debt last month and added to cash and equivalent securities.

Gross cut the $161 billion Total Return Fund’s investment in mortgage bonds to 54 percent of assets, the lowest in almost two years, from 61 percent in May, according to a report on Pimco’s Web site. Gross trimmed holdings of government-related bonds to 24 percent of assets, the least since February, from 25 percent.

In an investment outlook published earlier this month, Gross said investors should look for “secure income” offered by bonds and dividend-paying stocks. “The outlook for risk assets — stocks, high-yield bonds, and commercial and residential real estate will involve just that — risk,” he said in the July 1 report.

Economic growth will be slower and profit margins will be narrower than in the past decade, Pimco’s co-chief investment officer wrote in the report. An index of consumer confidence declined to 47 this month from 49.3 in June, according to a Bloomberg News survey of economists before the Conference Board’s report July 28, as rising unemployment undermines optimism the U.S. recession is about to end.

Mark Porterfield, a Pimco spokesman, has said the firm doesn’t comment on fund holdings. The government-related debt category can include nominal and inflation-linked Treasuries, so-called agency debt, interest-rate derivatives and bank debt backed by the Federal Deposit Insurance Corp.

Gross has been selling mortgage-backed securities over the past few months after loading up on them last summer in the midst of the financial crisis, which started with the collapse of the U.S. property market in 2007. The meltdown triggered $1.51 trillion of writedowns and credit losses at banks and sent the global economy into its first recession since World War II. U.S. unemployment increased to 9.5 percent in June, the most since 1983.

Pimco has forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower growth in the coming years. U.S. growth rates will slow to 2 percent or less over the next five years, according to the firm.

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