(Bloomberg News) Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said Treasuries "have little value" because of the growing U.S. debt burden.
The U.S. has unrecorded debt of $75 trillion, or close to 500% of gross domestic product, counting what it owes on its bonds plus obligations for Social Security, Medicare and Medicaid, Gross wrote in his monthly investment outlook. The U.S. will experience inflation, currency devaluation and low-to- negative interest rates after accounting for consumer-price gains if it doesn't reform its entitlement programs, he said.
Pimco "has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden," Gross wrote in the report published on Newport Beach, Calif.-based company's website. Congress "must make 'debt' a four-letter word."
The comment echoes Warren Buffett, the billionaire investor who recommended avoiding long-term fixed-income bets in U.S. dollars because the currency's purchasing power will drop. Treasuries have handed investors a 0.1% loss this quarter, adding to a 2.7% decline in the final three months of 2010, based on Bank of America Merrill Lynch data.
President Barack Obama's government has increased the U.S. publicly traded debt to a record $9.05 trillion, leading Gross to compare the nation to Greece, which had its credit ratings cut two steps by Standard & Poor's on March 29.
"We are out-Greeking the Greeks," he wrote.
Inflation Risk
Gross said in an interview March 11 that he eliminated government-related debt from his Total Return Fund because investors aren't being adequately compensated for the risk of quickening inflation.
Buffett has shortened the maturities of Omaha, Neb.-based Berkshire Hathaway Inc.'s bond holdings as the Federal Reserve eased monetary policy to stimulate the economy, according to regulatory filings.
"I would recommend against buying long-term fixed-dollar investments," Buffett, chairman and chief executive officer of Berkshire, said March 25 in New Delhi. "If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not."