2010 is “Year of Reckoning” According to Pimco’s Bill Gross

Bill Gross, offers some compelling insight into the economic forecast, in an interview with TIME magazine. Interestingly, he thinks German government bonds are “higher quality” than treasuries.

TIME: So maybe cash becomes the best asset class of 2010?

Bill Gross: I’m not being wishy-washy here, but cash doesn’t earn anything. There’s the Will Rogers quote about being more concerned about the return of your money, but you also have to be concerned about the return on your money, and there’s nothing [being paid] by cash and Treasury bills. At Pimco we would probably try and substitute for our Treasuries with sovereign bonds of potentially higher quality. Germany looks interesting to us. Germany has problems, but it’s in a much better budget situation than the U.S. because of a constitutional amendment three months ago that forces a balanced budget in four years.

TIME: Given all the crosscurrents, what will the investor’s world look like in the years ahead?

Bill Gross: In a new-normal world, growth will be half of what it was, profit growth will be half of what it was, and returns on almost all assets — including bonds — will be half of what we’ve grown used to. Further, the U.S. economy and other [developed] economies have provided as a whole 7% to 9% returns over the past 10, 20 years, and investors got used to that. That’s one of the reasons why states and pension funds with the long-term liabilities matched to expectations for double-digit types of returns are facing problems — now they are suddenly having to come to grips with the potential reality of half-sized returns. I think increasingly in 2010 the market will begin to adjust to that.

Full Interview

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