By Sam Forgione
NEW YORK Jan 3 Bill Gross, founder and co-chief
investment officer of bond giant PIMCO, wrote in his first
letter to investors this year that money printing by central
banks will lead to a destructive bout of inflation.
Gross, who has criticized the Federal Reserve's purchases of
Treasuries and agency mortgage bonds in past letters, wrote in
his January investment outlook entitled "Money for Nothin'
Writing Checks For Free" that the purchases will lead to a
devaluation of currencies and gradually weaker investment
"The future price tag of printing six trillion dollars'
worth of checks comes in the form of inflation and devaluation
of currencies either relative to each other, or to commodities
in less limitless supply such as oil or gold," Gross wrote.
Gross, whose Pacific Investment Management Co. had $1.92
trillion in assets as of Sept. 30, 2012, referred to a speech in
2002 by Federal Reserve Chairman Ben Bernanke in which Bernanke
said that the United States could print an unlimited amount of
dollars "at essentially no cost."
Gross countered in his letter that the cost will be
inflation, which will weaken the returns on long-term bonds and
eventually risk assets such as stocks and high-yield bonds, and
also hurt businesses.
Gross likened inflation to "dragons" lurking within the
"cave" of money-printing programs.
"Zero-bound interest rates, QE maneuvering, and 'essentially
costless' check writing destroy business models and stunt
investment decisions which offer increasingly lower ROIs and
ROEs," Gross wrote, referring to returns on investment and
Gross' flagship PIMCO Total Return Fund earned a return of
10.36 percent in 2012, besting 88 percent of U.S.
intermediate-term bond funds, according to Morningstar. The fund
attracted $18 billion in new cash last year, bringing assets in
the fund to $285 billion.
According to PIMCO's website, the flagship fund's biggest
holdings are in mortgage and Treasury bonds, the securities
which the Fed pledged to buy at $85 billion per month last
December. The fund had 44 percent of its holdings in mortgage
bonds and 23 percent of its holdings in Treasury securities as
of the end of November 2012.
Gross recently wrote on PIMCO's twitter account on December
30 that stocks and bonds will return less than 5 percent in