Bill Gross: Entitlements Key To Cutting Federal Budget Deficit

Pimco’s Bill Gross: Entitlements Key To Cutting Federal Budget Deficit

Excerpt:

If the U.S. government was a corporation, Gross maintains, “then it would probably have a negative net worth of $35-$40 trillion.”

Without big cuts in entitlements, Gross paints a not-so-rosy picture. He writes:

“Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies – inflation, currency devaluation and low to negative real interest rates.”

Gross has essentially sold-off his Treasury holdings in the Total Return Fund.

He says that if sitting before Congress, he would say something like:

“I sit before you as a representative of a $1.2 trillion money manager, historically bond oriented, that has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden.”

Comment: Note comment on inflation

The Morningstar Style Box - Fixed-Income

Morningstar Style Box

Excerpt:

The Fixed-Income Style Box

The model for the fixed income style box is based on the two pillars of fixed-income performance: interest-rate sensitivity and credit quality. As depicted in the image below, the three interest sensitivity groups are limited, moderate and extensive and the three credit quality groups are high, medium and low. These groupings display a portfolio's effective duration and third party credit ratings to provide an overall representation of the fund's risk orientation given the sensitivity to interest rate and credit rating of bonds in the portfolio.

Comment: Readers may be familiar with this but it is relatively new to me. So in the case of PTTAX, the credit quality is high, the interest rate sensitivity is medium.