Bill Gross: "We Are Acting Like Meth Addicts"
October 2, 2012 @ 2:05 PM EST
Bill Gross, the generally respected co-head of PIMCO publishes a highly anticipated monthly “Investment Outlook” piece and his October release was out today.
We will save you a lot of dense reading but if you would like to find it, look under the title “Damages” on the PIMCO website.
Gross continues to hit on PIMCO’s well-publicized “New Normal” theme and this month pretty much says that even the somewhat grim outlook of “no return to the good old days” is threatened by government debt, spending and the “Fiscal Cliff”.
Here are some of the key excerpts which really capture his entire thesis:
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How could the U.S. still not be the first destination of global capital in search of safe (although historically low) prospective returns?
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Well, Armageddon is not around the corner. I don’t believe in the imminent demise of the U.S. economy and its financial markets. But I’m afraid for them.
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And so are the IMF (International Monetary Fund), the CBO (Congressional Budget Office) and the BIS (Bank of International Settlements).
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What they’re saying is that when it comes to debt and to the prospects for future debt, the U.S. is no “clean dirty shirt.” The U.S., in fact, is a serial offender, an addict whose habit
extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth. Uncle Sam’s habit, say these respected agencies, will be a hard (and dangerous) one to
break.
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And to draw, dear reader, what I think are critical relative comparisons, look at who’s in that ring of fire alongside the U.S. There’s Japan, Greece, the U.K., Spain and France, sort of a
rogues’ gallery of debtors. Look as well at which countries have their budgets and fiscal gaps under relative control – Canada, Italy, Brazil, Mexico, China and a host of other developing
(many not shown) as opposed to developed countries.
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The U.S. and its fellow serial abusers have been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult.
- So I posed the question earlier: How can the U.S. not be considered the first destination of global capital in search of safe (although historically low) returns? Easy answer: It will not be if we continue down the current road and don’t address our “fiscal gap.” IF we continue to close our eyes to existing 8% of GDP deficits, which when including Social Security, Medicaid and Medicare liabilities compose an average estimated 11% annual “fiscal gap,” then we will begin to resemble Greece before the turn of the next decade.
Good Trading!
David Wismer
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