Gross Says Collapse of Corzine’s MF Global May Erode Investor Confidence

By Margaret Collins - Nov 2, 2011 11:01 AM GMT+0700

Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., said the collapse of MF Global Holdings Ltd. (MF) may further erode investor confidence.

Investors may be “more concerned about the return of their money than the return on their money,” Gross said yesterday in San Francisco at a conference for investment advisers held by Charles Schwab Corp. (SCHW)

MF Global filed the eighth-largest U.S. bankruptcy on Oct. 31, after failing to find a buyer over the weekend. The New York-based futures broker suffered a ratings downgrade and loss of customers after revealing it bet $6.3 billion on Italian, Spanish, Belgian, Portuguese and Irish debt, leading to the bankruptcy filing.

The collapse exemplifies how the banking system has become more about leveraging the returns of capital than transferring it to profitable industries, said Gross, 67, who is co-chief investment officer of Newport Beach, California-based Pimco.

“Over a period of years Wall Street sort of lost its way,” Gross said. “We need a banking system that is attractively and conservatively capitalized.”

The best way for the U.S. to get out of a “new normal” of slow growth is “to grow at the expense of the rest of the world,” Gross said. The nation can do that through education, technology, buying American goods and devaluing the currency in relation to other developed countries, he said.

4% a Year

“We would have to grow at 4 percent for a number of years to elevate GDP and reduce debt,” Gross said.

Economists project gross domestic product expansion of 2 percent in 2012, according to the average estimate of 80 responses in a Bloomberg survey.

Pimco outlined the firm’s “new normal” scenario at its annual Secular Forum in May 2009. The company predicted that following the market plunge in 2008 the U.S. economy would expand at a below-average pace for the next several years as growth in developed countries slows, unemployment stays elevated and the “heavy hand of government” is evident.

The U.S. is in a period of “financial repression” with savers subsidizing the nation’s debt, Gross said.

The Occupy Wall Street movement of protesters who have camped out for about six weeks in Lower Manhattan’s Zuccotti Park and in other cities is focused on employment, Gross said. “They’re sending a message that they want a job,” he said.

Gross spoke at this week’s Impact conference, which has more than 4,000 people registered including about 2,000 investment advisers, according to Susan Forman, a spokeswoman for San Francisco-based Charles Schwab.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net

To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net