Investors should favor government bonds in countries with strong fiscal positions, such as Germany, this year, and prepare for a
tougher year in the U.S. and the U.K. in particular, where interest rates will rise as governments and central banks start to
withdraw their huge stimulus efforts, according to Bill Gross, co-chief investment officer at bond fund giant Pimco.
Bill Gross, January 2010 Pimco investment outlook.
Distressed as I am about the state of American democracy, a rational money manager cannot afford to get mad or “just get even” when it comes to investing clients’ money. Still, like pilots politely advertise at the end of most flights, “We know you have a choice of airlines and we thank you for flying ‘United’.” Global investment managers likewise have a choice of sovereign credits and risk assets where stable inflation and fiscal conservatism are available. If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.
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