Stock Rebound May Be Premature
A recent "euphoric" rebound in stocks and
non-government bonds may be premature as deeper home
price declines threaten the economy and financial
markets, the manager of the world's biggest bond fund
said.
Bill Gross, chief investment officer of Pacific
Investment Management Co. (PIMCO), also warned that
additional interest rate cuts by the Federal Reserve
may do harm by weakening the dollar further and
stoking inflation.
The Federal Reserve has slashed the benchmark U.S.
federal funds target rate by 3 percentage points since
September to 2.25 percent.
The letter -- likening the market turmoil of the past
year to trench warfare -- warns investors against
jumping too quickly to the conclusion that the
bloodshed in financial markets is over, despite the
comparative tranquility of financial markets in recent
weeks.
Since the Federal Reserve and JPMorgan Chase & Co's
rescue of Bear Stearns Cos in mid-March, the U.S. S&P
500 index has rebounded by about 9 percent to the
highest levels since early January.
Recession, and its vicious-cycle effect on employment
and consumer spending, remains a threat, and this
recession, although currently mild and as of yet not
even officially validated, may not be your
garden-variety ... downturn," Gross said.
"suggests the possibility, not the probability, that
recent euphoric moves in equity prices and credit
market spreads might be premature." he wrote.
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