Investors looking to preserve their purchasing power will have to avoid Treasurys and put their money in “real assets" such as stocks and real estate, Bill Gross, Pimco co-founder, told CNBC’s “Closing Bell” on Monday.
“In the Treasury market all interest rates are on a negative basis,” Gross said. “Risk averse investors looking to hide in Treasurys will see a haircut relative to future inflation.”
So in order to maintain purchasing power, investors are being forced into riskier assets like stocks, high-yield bonds, real estate and gold, Gross said.
“It doesn’t mean you should buy them,” Gross added. “But if you want to maintain purchasing power you have to make the leap into real asset territory to get a real return.”
If Bernanke and other central banks can successfully reflate their economies, then “an investor wants real assets that can appreciate with that successful reflation,” Gross said. If they cannot, investors will continue to want high quality assets like Treasurys so they can maintain their principal, according to Gross.
Gross expects further Fed easing, but doesn’t expect anything at the August meeting. “Also what they do will be substantially diluted to what they’ve done in the past,” Gross said.
“With the 5-year Treasury at half a percent there’s little to do to lower rates. They might ultimately have to go to negative rates,” he said.