Newport Beach Financial Whiz Warns of 'Mini Depression' Unless Trillions Spent

A Newport Beach executive has got President Obama's back, saying the U.S. may slump into a "mini depression" unless policy makers spend trillions of dollars to spur growth. "This economy needs support from the government, a check from the government in the trillions," Bill Gross, the co-chief investment officer at Pacific Investment Management Co., says in a Bloomberg Television interview from PIMCO's Newport Beach HQ. "There is a potential catastrophe if the U.S. government continues to focus on billions of dollars."

Actually, at $900 billion, Obama's proposed stimulus package is just shy of a trillion. The Federal Reserve awarded PIMCO a contract in December as one of the four managers of a $500 billion program to purchase mortgage-backed securities.

Gross said the Federal Reserve will likely have to buy debt if, as expected, China and others slow down their American debt purchasers as they deal with their own weak economies. "It is incumbent upon the Fed to step in," Gross says. "If they do, that will be a significant day in the bond market and the credit markets."

The 64-year-old billionaire manages the world's biggest bond fund, the $132 billion Total Return Fund, which gained 4.8 percent last year and has outperformed 99 percent of its peers over the past five years, according to Bloomberg's data, which shows the average government and corporate bond fund lost 8 percent in 2008.

"Gross is worth heeding," writes money manager and investment editor Eric Roseman on his Roseman Eruptions blog on The Soverign Society ("Feel the Freedom of Total Wealth") website. "He is the dean of bond investing in the United States for more than three decades and has made some prescient calls on interest rates and other macroeconomic trends."

But Jeff Poor (no, I'm not making that up) of the Business & Media Institute ("Advancing the Culture of Free Enterprise in America"), accuses Gross of sensationalism. "Bill Gross doesn't have a grasp of how much 'trillions' are," Poor writes on his own site.

"Although Gross is one of the most successful bond traders and fund managers in the private sector, this isn't the first time he's appeared in the financial news and produced a sensationalized headlines," Poor adds. "On Aug. 23, 2007, Gross called for a full fledged housing bailout."