Warren Buffett, Bill Gross spar over buying bonds

4:31 AM bonds, Buffett, buying, Gross, Warren No Comments

Berkshire Hathaway Chairman Warren Buffett: Bonds are 'dangerous.'

With the stock market coming off its best January since 1997, is now the time to turn away from equities and invest in bonds?

Apparently, it’s not a question that some of the world’s biggest can agree on.

According to a Bloomberg News report, renowned fund manager Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management, has increased his holdings of Treasuries to the highest level since July 2010, while billionaire investor Warren Buffett calls bonds “dangerous” destroyers of purchasing power for investors.

Gross, who has earned the title “the Bond King”' for his mastery over the bond market, has boosted U.S. government and Treasury debt to 38 percent of assets in Pimco’s $250.5 billion Total Return Fund from 30 percent in December, Bloomberg reported.

Buffett, another investment guru with a faithful following, said Thursday in an adaptation from his upcoming shareholder letter posted on Fortune magazine’s website that taxes and inflation should deter investors from buying debt.

“They are among the most dangerous of assets,” Buffett wrote. “High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.”

Buffett also notes that “over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal.”

“This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.”

Buffett writes that equities almost always beat the alternatives over time. His comments echo those of Laurence D. Fink, the chief executive officer of investment firm BlackRock, who said earlier this week that investors should have 100 percent of their holdings in equities because they offer greater returns than bonds.