I thought you might be interested in this take on the plight of the U.S. and what needs to be done in our country by Bill Gross - probably the U.S.'s best known and respected bond expert. What struck me is that he talks implicitly about the weakness of our governmental leadership (another capitalist who "gets it") and the need for big changes on the part of the citizens.
The main points of his commentary are about inflation where he shows that U.S. inflation has been grossly underestimated for years compared to the rest of the world (surprise!). But importantly, it is pretty clear that Gross thinks that we need new, and very strong leadership (read Democratic) to inspire and November is not soon enough. Unless we have this leadership, and unless the citizenry starts to awaken from its decade long sleep in the dreamlands of TV, credit cards, immediate gratification, and lightweight politics, e.g., candidates pastors, we may be toast. I think this is pretty heavy stuff coming out of mainstream Wall Street. (Of course our Kossack experts have been on this case for a long time now!)
In case we are toast and McCain gets elected, Gross has some investment advice for at least a slice of your investments that I think has a lot of merit. Check it out below the fold.
We have been living in a dreamland for the past decade according to Bill Gross of Pimco thanks in part to the U.S. Government and they way they track inflation. Seconding the excellent new book by Kevin Phillips (Bad Money), bond guru supreme Bill Gross says we have been fooled for years about the inflation rates we have experienced in the past seven years (Surprise that it coincides with Buscho).
While he doesn't want to say who the source is, he suggests that for the past seven years, the U.S. inflation rate has been closer to the global inflation rate of 7%. Of course anyone who carries money in their pockets knows this by experience! He says the 'top line' inflation figure the USG hides behind is not use by other countries.
Gee, guess who this sleight of hand inflation accounting benefits??? Here is his money line:
There is no doubt that an artificially low [inflation] number favors government and corporations as opposed to ordinary citizens.
But his most important commentary is his realization that our government and its leadership has failed us in several key areas. His assertions support the conclusion that there has actually been a clear underlying conspiracy to "fool" U.S. consumers with the perception of low inflation (and more) and a relaxed regulatory environment where bloviator-riddled, sensationalist mainstream media makes us all 'low information' citizens. But read Bill:
What this country needs is either a good 5¢ cigar or the reincarnation of an Illinois "rail-splitter" willing to tell the American people "what up" – "what really up." We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value. After 12 months of an endless primary campaign barrage, for instance, most of us believe that a candidate’s preacher – Democrat or Republican – should be a significant factor in how we vote. We care more about who’s going to be eliminated from this week’s American Idol than the deteriorating quality of our healthcare system. Alternative energy discussion takes a bleacher’s seat to the latest foibles of Lindsay Lohan or Britney Spears and then we wonder why gas is four bucks a gallon. We care as much as we always have – we just care about the wrong things: entertainment, as opposed to informed choices; trivia vs. hardcore ideological debate.
Bill Gross Commentary June 2008
Gross does not see the U.S. as the place to be with all of our meager money. Quite the contrary. Here are his conclusions about what the great inflation cover-up means for us.
1)Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.
BTW, BRIC means "Brazil, Russia, India,and China." So, the idea here is that these and some other countries have a much better handle on their own economies and operate with more realistic assumptions than we do in the U.S. Oversimplified, global investors are more likely to buy stocks and hold bonds in countries where they know what is happening, and to avoid countries like the U.S. where there are serious distortions. Thus, they are likely to have better returns as we go forward. Sounds scary for those of us used to putting our 401(k)s into General Electric and letting it ride. But there are ways to get overseas exposure that are not so scary. Plus, there countries are where the U.S. was 30-40 years ago, and look at what happened to our markets between 1960 and 2000.
Here is Gross' final comment. It brings us back to the U.S. political reality. We desperately need a change at the top, in the middle, and at the bottom. We all need to change. Who can inspire us to change through this difficult transition?
Investment success depends on an ability to anticipate the herd, ride with it for a substantial period of time, and then begin to reorient portfolios for a changing world. Today’s world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable. Join me in lobbying for change in U.S. leadership, the attitude of its citizenry..., and the market’s assumption of low relative U.S. inflation in comparison to our global competitors.