This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Bill Gross: QE2 Signals End of Bond Rally

NEW YORK ( TheStreet) -- The Fed's announcement of quantitative easing, widely expected next week, would likely signify the end of a great 30-year bull market in bonds, according to Pimco chief investment officer Bill Gross.

In his November outlook, the influential bond fund manager said that Pimco largely endorsed the Fed's move but admitted that he was uncertain of whether further quantitative easing will help the economy.

"We are, as even some Fed Governors now publicly admit, in a 'liquidity trap,' where interest rates or trillions in QE2 asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try -- it is, to be honest, all he can do," he wrote.


On the outlook for bonds, however, Gross was decidedly less bullish. "While next Wednesday's announcement will carry our qualified endorsement, I must admit it may be similar to a turkey looking forward to a Thanksgiving Day celebration," he wrote.

"Check writing in the trillions is not a bondholder's friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme," Gross wrote. Further quantitative easing would only temporarily raise prices giving the illusion of high returns, but ultimately prices will reach a dead-end as interest rates head to zero bound. "Having arrived at its destination, the market then offers near 0% returns and a picking of the creditor's pocket via inflation and negative real interest rates."

Gross says Pimco will still be able to deliver returns to its investors by investing in emerging market debt with higher yields, non-dollar denominated debt, global corporate bonds or U.S. agency mortgages yielding 200 basis points over 1% treasuries.

Still, investors -- both in stocks and bonds -- may have to adjust to a period of low returns. Both Gross and Pimco's Mohammad El-Elrian have been big proponents of the "new normal" concept -- a period of below-average economic growth and low returns across asset classes.

-- Written by Shanthi Venkataraman in New York



>To contact the writer of this article, click here: Shanthi Venkataraman.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: tips@thestreet.com.

RELATED STORIES:



Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,195.42 +221.11 1.30%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,566.1380 +16.9120 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs