Wednesday, October 28, 2009

Dollar ‘Over-Owned,’ Will Fall to Record, Gross Tells CNBC

By Ruby Madren-Britton

Oct. 28 (Bloomberg) -- The dollar is an over-owned currency and likely to fall to an all-time low against major counterparts, Pacific Investment Management Co.’s Bill Gross said in an interview on CNBC.

“The Chinese, the Asians, have owned too many dollars for too long,” said Gross, a founder and co-chief investment officer of the world’s biggest manager of bond funds. “The dollar becomes more and more owned and less and less desirable, so ultimately the direction is down. I don’t sense stability in the dollar.”

The U.S. currency stands a chance of moving “substantially lower” unless the Chinese decide the world has renormalized enough that they can start seeking higher-yielding assets, Gross said. Global investors have much less tolerance for risk as the world recovers from the financial crisis, Gross said.

A weaker dollar is positive as it rebalances production levels in the U.S. and Asia, Gross said. With “half the earnings” of the Standard & Poor’s 500 Index coming from overseas, U.S. stocks have been propelled by a weaker dollar, according to Gross.

“The extent that the dollar goes up, it reverses all of those positive trends,” he said.

The Dollar Index, which the ICE uses to gauge the greenback against currencies including the euro, yen and pound, increased 0.2 percent today to 76.289. It reached an all-time low of 70.698 in March 2008.

The six-month rally in high-risk assets is likely at its peak as U.S. economic growth lags behind historical averages, according to Gross.

Gross made the forecast yesterday in commentary posted on Newport Beach, California-based Pimco’s Web site. The company predicts a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.

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