End of Stimulus May Cause A 'Double-Dip' Recession: Gross
The inability of the government to continue pumping stimulus into the economy could promote a double-dip recession that will mean investment opportunities in longer-term government debt, Pimco's Bill Gross told CNBC.
As inflation becomes less a possibility due to the weakening economy, 10-year notes and 30-year bonds could provide solid investment opportunities, Gross, CIO of the world's largest bond fund, said in a live interview.
"To the extent that we have had a trillion dollars worth of stimulus, from the standpoint of deficits, and more, the government basically has to continue to do that and to add to that in order to keep the economy chugging along," he said. "To the extent that that's limited, to the extent that they pull back on some of those stimulus programs—Cash for Clunkers and those types of things—then the double-dip moves into the realm of possibility."
A double-dip refers to a second leg down in the recession, which many economists say is ending.
But Gross said the situation remains precarious in what his firm repeatedly has called the "new normal" of much slower growth rates than normal over an extended period of time.
With another drop possible and continued deflation, he said 30-year bonds with a yield of 4.13 to 4.15 percent would become attractive.
"If we have a slow-growth economy this in effect promotes a bull flattening for 10- and 30-year Treasurys," he said.
Gross said investors will need to continue to watch the Federal Reserve for the central bank's future intent with regard to quantitative easing—the efforts to control interest rates and stimulate the economy. Fed minutes released Wednesday indicate its governors are conflicted over what should be done, he said.
"As long as the Fed and other central banks keep policy rates low and as long as inflation doesn't rear its head ... intermediate and longer bonds do well," Gross said.