With debt overwhelming the eurozone and investors fleeing or demanding sky-high yields, PIMCO’s Bill Gross says it would cost the European Central Bank some 5 billion euros ($6.6. billion) to lure investors back.
Without concentrated peripheral bond-buying at that rate, says Gross, would-be investors will maintain their “no trust zone” and continue to be skeptical of policy moves designed to woo them back into the bond market.
In his December Investment Outlook, Gross (left) says that with nations bound together in a common currency and Germany pretty much calling the shots, weaker countries can’t print-and-spend their way out of their fiscal woes, as can the “cleaner dirty shirts” like the U.S. and the U.K. Calling the eurozone’s problems global and secular in nature, he warns that growth will be stunted, interest rates will stay low and investors will remain disappointed as returns fail to live up to their expectations.
As a solution to what he calls developed nations’ “straitjacket of debt” that will continue to mire investors in poor circumstances, he suggests that instead they turn to more risk assets in such places as Asia and Brazil, and monitor the yield of bonds over shorter periods than their issue. A return of 5%, he adds, will put an investor’s portfolio in the “upper echelon.”
Deflationary policies that are too little and too late, coupled with a dysfunctional eurozone and an overwhelming level of global debt, says Gross, will combine to depress markets not just into poor returns but into frightening territory “for months/years to come.”
A lack of growth remains at the heart of the crisis, as he said in a November letter to investors, and debt by itself, without growth, will not win the day. The structural problems he cited then remain; and as long as structural difficulties are at the heart of the problem, throwing money at the problem will not solve it, he said.