PIMCO's Gross: Everything's Overvalued, Structural Changes Needed NOW
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PIMCO founder, managing director and co-CIO Bill Gross issued his monthly Investment Outlook letter for October 2011 today, the first trading day of the month.
Arguably one of Gross' better letters, he rambles for about three solid paragraphs on the current state of his abdominal "bulge," despite all the yoga and situps he's been doing. Paints somewhat of a ghastly picture, like looking at slightly moistened bread dough with a smack of random hairs strewn about.
*Shudder*
That isn't the point of the letter. Gross' escapades to beat the bulge extend far beyond elastic waistbands, and directly into his portfolio. He muses that the term "bulge" would be flattery when using it on today's debt crisis. Gross comments that, "sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack."
Gross identifies three roadblocks on the way to economic growth: "1) Globalization has hollowed developed economy labor markets, 2) technology has outdated entire industries that produce physical as opposed to “cloud”– oriented goods and services – books, records, postal letters and DVDs among the most recent dinosaurs, and 3) an aging demographic is now favoring savings as opposed to consumption in almost all developed nations."
Items like globalization and technological innovation have negative connotations on domestic wages and employment. Then the economy turned to debt to fuel growth in lieu of savings.
Gross contends that "almost all remedies proposed by global authorities to date have approached the problem from the standpoint of favoring capital as opposed to labor. If the banks could just be stabilized, if the "markets" could just be elevated back in the direction of peak 401(k) levels, if interest rates could just be lower so that borrowers would inevitably take the bait, then labor – job creation – would inevitably follow. It has not."
Prosperity can only go so far if Main Street is unemployed and under-compensated, Gross continues. Should structural solutions not be put in place, stocks and bonds will resemble flabbier versions of their former selves.
"There are no double-digit investment returns anywhere in sight for owners of financial assets," Gross avers. "Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years."
Click here to read the full letter, and get some color on pre-tax corporate profit-to-GNI fluctuations.
Arguably one of Gross' better letters, he rambles for about three solid paragraphs on the current state of his abdominal "bulge," despite all the yoga and situps he's been doing. Paints somewhat of a ghastly picture, like looking at slightly moistened bread dough with a smack of random hairs strewn about.
*Shudder*
That isn't the point of the letter. Gross' escapades to beat the bulge extend far beyond elastic waistbands, and directly into his portfolio. He muses that the term "bulge" would be flattery when using it on today's debt crisis. Gross comments that, "sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack."
Gross identifies three roadblocks on the way to economic growth: "1) Globalization has hollowed developed economy labor markets, 2) technology has outdated entire industries that produce physical as opposed to “cloud”– oriented goods and services – books, records, postal letters and DVDs among the most recent dinosaurs, and 3) an aging demographic is now favoring savings as opposed to consumption in almost all developed nations."
Items like globalization and technological innovation have negative connotations on domestic wages and employment. Then the economy turned to debt to fuel growth in lieu of savings.
Gross contends that "almost all remedies proposed by global authorities to date have approached the problem from the standpoint of favoring capital as opposed to labor. If the banks could just be stabilized, if the "markets" could just be elevated back in the direction of peak 401(k) levels, if interest rates could just be lower so that borrowers would inevitably take the bait, then labor – job creation – would inevitably follow. It has not."
Prosperity can only go so far if Main Street is unemployed and under-compensated, Gross continues. Should structural solutions not be put in place, stocks and bonds will resemble flabbier versions of their former selves.
"There are no double-digit investment returns anywhere in sight for owners of financial assets," Gross avers. "Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years."
Click here to read the full letter, and get some color on pre-tax corporate profit-to-GNI fluctuations.
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William H. Gross, Pacific Investment Management Company, LLC (PIMCO)Sign up for StreetInsider Free!
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