Wednesday, October 27, 2010

Bill Gross.. Unleashed

Bill Gross is the co-CEO of the gigantic investment firm Pacific Investment Management Co, otherwise known as PIMCO. This company is about as big as any bank in America. Bill Gross himself is a very intelligent, very soft spoken guy who is very careful what he says when microphones are near. Last May, when Greece was going under, Bill described Greece's financial position as "challenging", when most were using terms like bankrupt, basketcase, hopeless etc.

Thus the letter he released yesterday was utterly shocking. It appears that Herr Gross just had his "Jerry McGuire Moment", empty flask and all. It's a long letter, aimed mostly at the worthless politicians we elect; I'll just post some of the more interesting comments: "We are being conned, folks.. by Republican and Democrat alike. Shame on them and of course shame on us. We're getting what we deserve. Vote NO in November.. no to both parties. Vote NO to a two party system that trades promises for dollars and hope for power, and leaves the American people high and dry". A little further down: "We are, as even some Fed Governors admit, in a 'liquidity trap' where interest rates or trillions in QE2 asset purchases may not stimulate borrowing or lending. Escaping from this liquidity trap might be impossible, much light trapped in a black hole". A tad further down another shocker: "Check writing in the trillions is not a bondholder's friend, it is in fact inflationary, and truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a ponzi-like characteristic. Now, however, with growth in doubt, it seems the Fed has taken Charles Ponzi one step further. The Fed is, in effect, telling the markets not to worry about our fiscal deficits because it will be the buyer of first and perhaps last resort. There is no need.. as with Charles Ponzi.. to find an increasing amount of future gullibles. We'll just print the money and write the checks ourselves. I ask you.. has there ever been a Ponzi scheme so brazen ? I call it the Sammy scheme, in honor of Uncle Sam and the politicians that we elect every two years" Lastly, he shoots us a prediction: "The Fed wants to buy, so come on Ben Bernanke, show us your best and perhaps last moves on Wednesday next. You are doing what you have to do, and it may or may not work. Either way, it will likely signify the end of a Great 30 year Bond Bull Market"

Remember, PIMCO manages nearly two trillion dollars in wealth. Imagine if the CEO of Citibank had stood up and said such things, or Goldman's CEO. They'd be run out of Wall Street by way of a swank rehab clinic confessing sins alongside Charlie Sheen. Probably a good thing Bill's company is located in California. In that last comment, what he's saying is that the interest rates the US Government pays on its Bonds will have to rise, and perhaps precipitously.
In other news, Jon Hilsenrath of the WSJ (otherwise known as Bernanke's publicist) came out with an article today suggesting that QE2 might actually disappoint.. in the $200 billion neighborhood. If this is so, why even bother ? I don't believe this. If Bernanke is going to go thru the hassle (and the expected public flailing) of doing more money printing, he's going to do it right. I still look for another trillion. If it is indeed a trillion or more, I look for the ten year US Bond to go south of 2%. with mortgage rates headed near 3% even. In yet more commentary from people of note, Peter Orszag, Obama's former OMB Chief, had this to say about Bernanke's upcoming PrintaPalooza: "by perpetuating an artificially low 10 year government bond rate, the Fed maybe delaying the very fiscal policy action that the nation most needs while doing little to boost an economy who's primary problem is not high long term interest rates"
Ben's friends are becoming fewer and fewer in number. But how much of this is his fault ? He's charged with inducing an economic recovery.. at the same time that the US Government needs to borrow one dollar out of every three it spends.. and at a very low rate.. to keep itself solvent. Ben does not have the power to take a chainsaw to the budget, recall troops home from abroad, slice entitlements or lower the capitol gains taxes, all of which he has in the past told Congress it desperately needs to do. The US Gov't simply spends money like a drunken sailor and tell Ben to fix it all. If he was'nt making a bazillion dollars a year, I myself would pity Mr.Bernanke.