Bill Gross: Fed Actions Could Lead to a 20% Weaker Dollar

The jitters continue as we near the Federal Reserve’s announcement of its new stimulation policy… which is likely to pump another half billion or so into the nation’s zombie economy through Treasury bond purchases. Perpetually influential Bill Gross, co-CIO & founder of PIMCO, which manages over $1 trillion in assets, is anticipating that Bernanke’s upcoming moves could lead to a precipitous 20 percent drop in the dollar’s value.

According to Moneycontrol.com:

“‘I think a 20% decline in the dollar is possible,’ Gross said, adding the pace of the currency’s decline was also an important consideration for investors. ‘When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory — that is a debasement of the dollar in terms of the supply of dollars on a global basis,’ Gross told Reuters in an interview at his PIMCO headquarters.

“The Fed will probably begin a new round of monetary easing this week by announcing a plan to buy at least USD 500 billion of long-term securities, what investors and traders refer to as QE II, according to a Reuters poll of primary dealers.

“‘QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices,’ Gross added. To a certain extent, that is what the Treasury Department and Fed ‘in combination’ want, said Gross, who runs the USD 252 billion Total Return Fund and oversees more than USD 1.1 trillion as co-chief investment officer.”

The Fed is of course aware fully aware of the adverse consequences of its actions and seems to welcome them, with no remorse given the damage it will inflict upon the nest eggs of diligent savers. In light of the weak dollar policy, Gross’ main suggestion is to look into investing abroad, where at least some ongoing growth stories can still be found.

You can read the details of his perspective by visiting Moneycontrol.com’s coverage of how Fed easing may mean 20% dollar drop.

Best,

Rocky Vega,
The Daily Reckoning