Gross Believes Not Raising Debt Ceiling Would Crush Dollar

PIMCO's Bill Gross appeared on CNBC's Squawk Box Friday morning. In his appearance, he echoed statements made by Treasury Secretary Timothy Geithner, President Obama, and Federal Reserve Chairman Ben Bernanke, stating that if the U.S. defaults on any future debt payments--even for a period of just six days--there will be disastrous consequences for the dollar. Warning that such an event would amount to a default on the U.S. dollar, he predicted that if the debt ceiling is not raised, the world will switch to a different reserve currency in short order. Republicans in congress have been stalling a debt ceiling extension bill, refusing to raise the borrowing limit unless there is a comprehensive, long-term, deficit reduction plan in place. Gross does not believe such reform will come until the 2012 election. On Friday, the U.S. dollar was down against other world currencies. At mid-day, it was down nearly 1%, dipping below $75. Gross questioned why investors would want to hold U.S. treasuries over blue chip stocks, stating that dividend paying stocks return a much greater yield than even Treasury inflation-protected securities (TIPS). Traders looking to play weakness in Treasuries might consider ProShares UltraShort 20+ Year Treasury TBT. TBT attempts to return a value inversely related to the performance of 20 year Treasury notes. With the Federal Reserve planning to end QE2 in June, traders might consider a short Treasury play as yields may spike when the Fed exits the market. However, if yields rise too much, the Fed may undertake a third round of quantitative easing, making a short Treasury play risky.