Tags: Gross | Europe | eurozone | money

Pimco’s Gross: Stay Away From Europe, They Just 'Want Your Money'

Tuesday, 07 Aug 2012 08:28 AM

By Barton Webster

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Bill Gross, co-chief investment officer of the world’s largest bond fund, warns investors to stay away from Europe, as the eurozone won’t be coming out of intensive care any time soon.

Pimco’s Gross, writing in a Financial Times editorial, says European leaders Angela Merkel, François Hollande, Christine Lagarde and Mario Draghi all have one thing in common: “They want your money!”

“The ultimate goal of monetary and fiscal policy in the EU is to re-engage the private sector,” he writes. “The EU needs the private sector as a willing (but not necessarily equal) partner in funding its economy.”

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

Europe needs to attract private sector money because policymakers know they will need it to fund the European economy. Current eurozone public spending plans aren’t sustainable and the bid to fix the debt crisis is doomed to fail, he writes.

“[P]rivate investors are balking – and for what it seems are good reasons,” he says. “Policymakers’ efforts have been, until now, a day late and a euro short.”

Investors are “misguidedly” focused on 7 percent yields on Spanish and Italian debt, below which they think they can find safety. Even lower yields, not to mention higher ones, will lead to “eventual drowning” as long as economic growth is “anywhere close to flat,” he writes.

Without the private sector forking up cash, efforts funded by the European Financial Stability Facility or the European Stability Mechanism, “may be futile,” he says.

Debt-issuing nations need to remember that credit and maturity extension is based on trust, he writes. But European policymakers have lost trust among investors with their “half-baked” policies, and credit downgrades are prompting investors to seek safe haven elsewhere.

“After policymakers finally appreciate the fragility of their rigged fiscal and monetary system … there is no coming home, there is no going back in the water,” he writes.

Meanwhile, Italy’s economy contracted for a fourth straight quarter in the three months through June, Bloomberg reports. Gross domestic product fell 2.5 percent from a year earlier, the most since the last three months of 2009.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.


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