Bill Gross: Avoid The Dollar, QE3 is Coming, Debt Bill Ineffective

Bill Gross of PIMCO is rather negative on the prospects for U.S. growth. He would rather invest in “clean shirt” economies. In addition, he is talking about the potential for the next round of Quantitative Easing that may be announced at the Jackson Hole confab in late August.

The recent run in Treasuries has benefited his fund immensely as binds have outperforming stocks over the past month or so. But, does the FED have he political will to actually pump more money into the system? As bond yields are approaching decade lows (some maturities at or close to record lows) what will be the justification for more money printing?

At this point, if it is strictly the wealth effect they are after, it would be much more effective to do direct buys of stocks. Perhaps buy SPY ETF at regular and announced intervals.

“What the Fed has done with QE1 and QE2 and perhaps QE3 is basically support risk assets—stock prices and the like—by lowering interest rates, real interest rates in particular,” Gross said. “So there is a limit in where they can go based on the strength and weakness of the dollar. The dollar cannot stand a continuing decline in interest rates because that leads to selling and currency pressure.”