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Bill Gross Says the Dollar Could Lose Another 20%

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Equity investors might appreciate the prospect of a new bond buying program, but the Bond King remains unconvinced.

First, in his latest monthly Investment Outlook released last week, Bill Gross unleashed some strong words at the prospect of additional quantitative easing, a maneuver intended to keep long term interest rates low, encouraging borrowing and spending by consumers and companies.

Gross compared this new round of monetary stimulus AKA QE-2 to a Ponzi scheme:

“The Fed wants to buy, so come on, Ben Bernanke, show us your best and perhaps last moves on Wednesday next. You are doing what you have to do, and it may or may not work. But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.”

Read the whole commentary here.

But the 66-year-old Gross isn’t through with Ben Bernanke and his FOMC allies. He’s now making headlines by saying that the U.S. dollar could be in for a mighty fall over the next few years if the central bank were to continue on this path. The Globe And Mail hands us the report:

“I think a 20-per-cent decline in the dollar is possible,” Mr. Gross, the chief of PIMCO, told the Reuters news agency yesterday.

Last week on PIMCO’s website, he likened QE2 to a Ponzi scheme, and warned of the consequences for bond investors.
“When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory - that is a debasement of the dollar in terms of the supply of dollars on a global basis,” Mr. Gross told Reuters.

“... QE2 not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices.”

Since August 27, when Ben Bernanke first hinted at the mere prospect of more monetary stimulus, stocks have soared, the dollar has fallen and commodities pits have been set aflame. Our central bankers might bet that a weaker dollar will goose exports, but the near-term ramifications have been heightened political tensions between policymakers the world over.

According to a recent TrimTabs/Barclay Hedge survey, 32% of hedge fund managers now cite currency wars as the biggest threat to global financial stability.
POSITION:  No positions in stocks mentioned.