Photo: Bloomberg TV
Yesterday Leon Cooperman, founder of Omega Advisors, was on Bloomberg talking about how risky U.S. Treasuries are, since inflation could wipe out their investments. Cooperman described investing in Treasuries as a “confiscation of capital.” Instead, he pushed for investment in stocks.Now, PIMCO’s Bill Gross who called U.S. treasuries “the cleanest dirty shirts”, found himself defending Treasuries on Bloomberg TV. Gross said he too has made Cooperman’s confiscation of capital argument, but said there are more reasons to be cautious about picking stocks instead:
“There are several reasons to be cautious. One, you know comparing treasury yields to corporate stock dividends expands a huge gap of risk – AAA for treasuries and an implied B / AA and lower for subordinated stocks as investment instruments. Secondly stocks can go down too, just like bonds, and we certainly saw that in 2008. And third, you know demographically boomers prefer certainty as opposed to speculative capital gains, and so there’s something, there’s an element to that.
Just as an example, this morning in the paper you know, it was pointed out that Ford is shifting billions of dollars a year from their equity portfolio into bonds. Why would Ford do that? Doesn’t Ford know that their capital is being confiscated? They’re doing that because of certainty, because they’re locking in their liabilities relative to their assets even at a low two to three per cent rate.
So boomers from the standpoint of individual investors are the same way. They’re beginning to get older, they’re beginning to require more certainty, and yes do they find an appeal in a Johnson & Johnson at 3.5 per cent dividend yield with growth potential? Sure they do, but they also believe that they want their money back and if there’s a 2008 and 2009 scenario perhaps they won’t. So there are demographic trade-offs here that have to be considered.”
Watch the interview at Bloomberg TV: