Bill Gross, who runs the world’s biggest bond fund at Pimco, says in an interview with Bloomberg that the U.S. economy is stalling and a recession is a real possibility.
In another Bloomberg interview, Harvard University economics professor Martin Feldstein said he thought “there’s now a 50% chance that we could slide into a new recession.”
For investors in TIPS, talk of recession is significant, because along with its many damages a recession brings the threat of deflation.
The Fed may arrange a third round of quantitative easing, known as QE3, Gross said. That would be significant for investors in Treasury Inflation-Protected Securities, because a third round of quantitative easing would inflame inflation fears.
But Gross repeats his oft-stated criticism of U.S. Treasuries, which he calls a ‘dirty shirt’ of investments, and notes there are ‘cleaner shirts out there.’
More pessimism … The Associated Press hit a home run with this lead-in today on its story about the worsening economy:
Shoppers won’t shop. Companies won’t hire. The government won’t spend on economic stimulus; it’s cutting instead. And the Federal Reserve is reluctant to do anything more.
Without much to invigorate growth, the economy may be in danger of slipping into a stupor like the one Japan has failed to shake off for more than a decade. And Wall Street is spooked.