Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Implication of U.S. Low Borrowing Rates for Savers, Don't Cry for PIMCO

Interest-Rates / US Interest Rates May 27, 2011 - 05:50 AM GMT

By: Bloomberg

Interest-Rates

Best Financial Markets Analysis ArticlePIMCO's Bill Gross spoke to Bloomberg Television’s Tom Keene today. Gross said that “savers are being disadvantaged” 5 to 15 years when compared to creditors, as the U.S. keeps borrowing rates low to reduce its debt burden and that investors should look to corporate bonds instead of U.S. debt.


Gross on the implication of U.S. low borrowing rates for savers:
“It means that savers are being disadvantaged and will be disadvantaged for perhaps five, ten to fifteen years relative to debtors."

"What policymakers are trying to do is rebalance this imbalance in terms of too much debt and too attractive rates on savings. What happens since 1946 to 1979 in the UK and the U.S., in order to rebalance balance sheets, was that the U.S. basically kept interest rates at 2.5% for much of that period of time and offered substantially lower real interest rates. That is what will be done here, and basically, it is called financial repression. We call it pocket picking. We simply suggest that investors look into other areas in order to achieve returns. “
On whether consumers should buy equities instead of bonds:

“I think so. Our recent secular forum suggests a bumpy territory…to the extent that G7 countries grow at 2% and to the extent that emerging and developing grow at 5 to 6% and those are our main level assumptions, then equities do make some sense. They do offer real returns in the form of a dividend yield than can grow approximately 1.7 to 2% or more in various countries. Compare that to real rates of interest in the United States on a 7-year on a -1%.”

On whether the Treasury 10-year yield will drop below 3%:

“I don’t think so. We have the end of QE2 at the end of June and that subtracts about $1 trillion of annual purchasing power the Fed will not be buying. I would be the first to admit that there is not enough data because QE1 and QE2 was such a short period of time to suggest what might happen afterwards. I simply think that yields would probably go higher as opposed to lower if only because we wonder who will buy Treasuries when the Fed does not buy Treasuries. At these levels, at these negative real interest rates, let's look to other countries, let's look to corporate bonds as opposed to Treasuries. “

On Pimco’s position in Treasuries:

“We're not overweight Treasuries. We're certainly underweight Treasuries, but that does not mean we don't own lots of other bonds. German bunds and Canadian bonds are rallying. We simply think those are better alternatives. It does not mean as well that we're not a little bit shy in terms of duration. We’re having a good year…so don't cry for Pimco.”

“What we are trying to do is find some countries that are less financially repressed…In the United States, the policy rate at 25 basis points is about 300 basis points less than inflation. That, along with the examples in the UK, are financially repressive, meaning that investors earn a substantial amount less than inflation. We want countries where we can do better than that.”

On whether he sees softening in consumption by the U.S. consumer:

“We continue to see low growth, not just in the U.S., but globally. On a domestic and global basis, I think it is clear we are not building houses for each other and there are not enough jobs to go around."

"It is not that demand is satiable -- it never is. It’s just that the financial system and the stability of existing systems to facilitate it aren’t in working order. Because of that, jobs will go to countries with the cheapest labor and policymakers will tend to make their country the labor market of choice via financial repression and currency depreciation.”

Gross on whether the Great Moderation is over:

“The Great Moderation in terms of steady and high real growth rates is over…What we experienced over the past 30 years in terms of real interest rates is a 10-year that basically traded close to nominal GDP. What we have right now is a 10-year at 3.06, which is trading perhaps 1% to 2% under nominal GDP going forward. Therein lies the difference. Savers are being disadvantaged and it pays them to look for alternatives.”

bloomberg.com

Copyright © 2011 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in