Long-term government debt is now proving to be one of the greatest threats to portfolios, even after providing some of the best market returns for decades. According to investor Wilbur Ross, inflation is going to creep up and ruin the value of any fixed-income government securities.
By: Jeff Cox
Published: Wednesday, 21 Mar 2012
Long-term government debt, which has provided some of the best market returns for decades, now poses the greatest threat to portfolios, investor Wilbur H. Ross told CNBC.
Ross added his voice to the warnings regarding Treasurys at the far end of the yield curve, cautioning that the inflation specter is about to creep up and hammer the value of fixed-income government securities.
"I think the greatest bubble that is about to burst is the 10-year and longer Treasury, because the idea that inflation is gone forever and for all time, and therefore these artificially low rates can last, is silly," the president of W.H. Ross & Co. said in an interview.
The long run in government debt growth has been boosted by accommodative policies at the Federal Reserve [cnbc explains] , which has held its targeted funds rate near zero since the explosion of the financial crisis, keeping government yields low, as well.
However, the 10-year in particular has begun to creep higher lately, most recently trading at 2.36 percent, its highest level since October.
That has caused some investors to wonder whether inflation pressures driven by historically loose Fed policy finally will come home to hammer fixed-income markets.
"I'd rather be in equities than in 10-year Treasurys," Ross said.
In particular, Ross has a large stake in oil and gas company Exco Resources [XCO 7.36 -0.04 (-0.54%) ], where he took a board seat in March. The company has dramatically underperformed the market since the rally began in October, falling 1.6 percent over the past month and 63 percent over the past year.
However, Ross likes the company's long-term story and specifically believes the natural gas business eventually will ascend as the U.S. gets more aggressive in looking to alternative energy options.
He said his company has been buying more Exco shares as the price has fallen.
"We like very much to invest in companies during time-limited problems, because eventually you get through that cycle and then the fundamentals come back out," Ross said. "The fundamentals are the U.S. is going to end up being a net exporter of natural gas. That's going to be wonderful to help our balance of payments, reduce our dependence on a lot of countries that aren't so crazy about us, and change many, many parts of what goes on here."
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