Gross says decades needed to normalize from too much debt

June 28 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said economies and their financial markets take decades to normalize after the havoc of a debt crisis, making U.S. securities still the safest bet for investors.

An authentic debt crisis, which the world is experiencing, can only be ultimately cured by default or printing more money in order to inflate it away, Gross said in his monthly investment outlook posted on the Newport Beach, California-based company’s website today. The U.S. Treasury market is considered the cleanest “dirty shirts” for investors, Gross wrote.

“Don’t underweight Uncle Sam in a debt crisis,” Gross wrote. “Money seeking a safe haven will find it in America’s deep and liquid, almost Aaa rated, bond and equity markets.”

Gross raised the proportion of U.S. government and Treasury debt in the $261 billion Total Return Fund to 35 percent in May, the first increase since January and up from 31 percent of its holdings in April. Mortgages remained the largest holding in the fund at 52 percent last month, according to data on the website.

In developed nations, Gross has advised investors to favor debt of the U.K., as well as the U.S., as Germany faces risks related to the eventual costs required to end the region’s worsening sovereign and banking crisis.

Zero-Bound Rates

Spain formally requested a bailout for its banks this week and Cyprus also sought a financial lifeline from the euro area’s firewall funds, becoming the fourth and fifth of the currency union’s 17 member states to require external aid.

European leaders are gathering for a two-day summit in Brussels to seek a strategy to contain the region’s debt crisis.

“A debt crisis can’t be cured with more debt” when national- and household-debt levels as a percentage of gross domestic product or household income become “imbalanced,” Gross wrote. “The fact is that the current burden of global debt is only being lightly alleviated via zero-bound interest rates.”

Developed nations’ central banks, from the Federal Reserve to the European Central Bank, have cut rates to at or near record lows since 2008. Fed policy makers have said they expect to keep their target rate for overnight loans between banks low through late 2014. The Fed’s benchmark rate is in a range of zero to 0.25 percent.

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