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Bill Gross Latest Monthly Outlook: "We May Need At Least A Decade For The Healing"

Tyler Durden's picture





 

Bill Gross' latest monthly missive begins with some political commentary on the latest presidential election, pointing out the obvious: after the euphoria comes the hangover, completely irrelevant of what happens to the Fiscal Cliff: 'whoever succeeds President Obama, the next four years will likely face structural economic headwinds that will frustrate the American public. “Happy days are here again” was the refrain of FDR in the Depression, but the theme song from 2012 and beyond may more closely resemble Strawberry Fields Forever, as Lennon laments “It’s getting hard to be someone but it all works out.” Why is it so hard to be someone these days, to pay for college, get a good-paying job and retire comfortably? That really was the economic question of the 2012 election towards which very few specifics were applied from either side. “There’s a better life out there for us,” Governor Romney bellowed to a crowd of thousands in Des Moines, Iowa just days before the election, but in truth he never told us how we were going to achieve it or, importantly, why we weren’t realizing it in the first place. The president’s political mantra of “Forward” was even more vague."

And while political campaigns were just that, the truth is that nobody has the trump card to a perfect quadrangle of problems which will mire the US economy for years to come, among which i) debt/deleveraging; ii) globalization, iii) technology, and iv) demographics. Gross' outlook is thus hardly as optimistic as all those sellside reports we have been drowned by in the past 2 weeks, hoping to stir the animal spirits one more time: 'We may need at least a decade for the healing.... it is getting harder to maintain the economic growth that investors have become accustomed to. The New Normal, like Strawberry Fields will “take you down” and lower your expectation of future asset returns. It may not last “forever” but it will be with us for a long, long time." Sad: looks like it won't be different this time after all...

From PIMCO

Strawberry Fields – Forever?

You didn't build that ..........     332
I built that .......................      206

Well, I guess that settles it: you didn’t build that after all. Or maybe you did, but not all of it. Or maybe like the convoluted John Lennon above “you think you know a yes, but it’s all wrong. That is you think you disagree.” Whatever. Rather than an economic mandate, November’s election was more of social commentary on the Republicans’ habit of living with eyes closed. Their positions on what Conan O’Brien labeled “female body parts” – immigration, gay rights and student loans – proved to be big losers, and they will have to amend rather than defend those views if they expect to compete in 2016. I suspect they will. Political parties are living social organisms that mutate in order to survive. We will see straight talking Chris Christie or Hispanic flavored Marco Rubio leading the Republican charge four years from now versus a reenergized Hillary Clinton. It should be quite a show with a “No Country for Old (White) Men” caste to it.

But whoever succeeds President Obama, the next four years will likely face structural economic headwinds that will frustrate the American public. “Happy days are here again” was the refrain of FDR in the Depression, but the theme song from 2012 and beyond may more closely resemble Strawberry Fields Forever, as Lennon laments “It’s getting hard to be someone but it all works out.” Why is it so hard to be someone these days, to pay for college, get a good-paying job and retire comfortably? That really was the economic question of the 2012 election towards which very few specifics were applied from either side. “There’s a better life out there for us,” Governor Romney bellowed to a crowd of thousands in Des Moines, Iowa just days before the election, but in truth he never told us how we were going to achieve it or, importantly, why we weren’t realizing it in the first place. The president’s political mantra of “Forward” was even more vague.
 
Their words were mum if only because the real cause of slower economic growth lies hidden in a number of structural as opposed to cyclical headwinds that may be hard to reverse. While there are growth potions that undoubtedly can reduce the fever, there may be no miracle policy drugs this time around to provide the inevitable cures of prior decades. These structural headwinds cannot just be wished away as we move “forward” whether it be to the right, the left or dead center. Last month in a major policy speech at the New York Economic Club, Fed Chairman Ben Bernanke concurred that the U.S. economy’s growth potential had been reduced “at least for a time.” He in effect confirmed PIMCO’s New Normal which has been in place for three years now, laying the blame in part on the financial crisis, diminished productivity gains, and investment uncertainty due to the near-term fiscal cliff. We do not disagree. However, there are numerous other structural headwinds that may reduce real growth even below the New Normal 2% rate that Bernanke has just confirmed, not only in the U.S. but in developed economies everywhere.
 
They are:
 
1) Debt/Delevering
Developed global economies have too much debt – pure and simple – and as we attempt to resolve the dilemma, the resultant austerity should lower real growth for years to come. There are those that believe in the “Brylcreem” approach to budget balancing – “a little dab‘ll do ya.” Just knock a few percentage points off the deficit/GDP ratio, they claim, and the private sector will miraculously reappear to fill the gap. No such luck after 2–3 years of austerity in Euroland, however. Most of those countries are mired in recession and/or depression. Political leaders there should have studied the historical evidence presented by Carmen Reinhart and Ken Rogoff in a critically important paper titled, “Growth in a Time of Debt.” They conclude that for the past 200 years, once a country exceeded a 90% debt/GDP ratio, economic growth slowed by nearly 2% for both developed and developing nations for an average duration of nearly a decade. Their work displayed below in Chart 1 shows the result in the United States from 1790–2009. The average annual U.S. GDP rate growth, while clearly influenced by the Great Depression, was -1.8% once the 90% barrier was exceeded. The U.S., by the way, is now at a 100% debt/GDP ratio on the basis of the authors’ standard measuring yardstick. (Note as well the 5½% average inflation rate during the same periods.)
 

In addition to sovereign debt levels which were the primary focus of the Reinhart/Rogoff studies, it is clear that financial institutions and households face similar growth headwinds. The former needs to raise equity via retained earnings and the latter to increase savings in order to stabilize family balance sheets. The combined need to increase our “net national savings rate” highlighted in last month’s Investment Outlook is a long-term solution to the debt crisis, but a near/intermediate-term growth inhibitor. The biblical metaphor of seven years of fat leading to seven years of lean may be quite apropos in the current case with the observation that the developed world’s growth binge has been decades in the making. We may need at least a decade for the healing.
 
2) Globalization
Globalization has been an historical growth stimulant, but if it slows, then the caffeine may wear off. The fall of the Iron Curtain in the late 1980s and the emergence of capitalistic China at nearly the same time was a locomotive of significant proportions. Adding two billion consumers to the menu made for a prosperous restaurant, increasing profits and growth in developed economies despite the negative internal effects on employment and wages. Now, however, these tailwinds are diminishing, producing an airspeed which inexorably slows relative to the standards of prior decades. Is it any wonder that markets now move up or down as much on the basis of policy changes coming out of China as opposed to the U.S. or Euroland? If China and the accompanying benefits of globalization slow, so too may developed economy growth rates.
 
3) Technology
T
echnology has been a boon to productivity and therefore real economic growth, but it has its shady side. In the past decade, machines and robotics have rather silently replaced humans, as the U.S. and other advanced economies have sought to counter the influence of cheap Asian labor. Almost a century ago, Keynes alerted the economic community to a “new disease,” what he called “technological unemployment” where jobs couldn’t be replaced as fast as they were being destroyed by automation. Recently, Erik Brynjolfsson and Andrew McAfee at MIT have affirmed that workers are losing the race against the machine. Accountants, machinists, medical technicians, even software writers that write the software for “machines” are being displaced without upscaled replacement jobs. Retrain, rehire into higher paying and value-added jobs? That may be the political myth of the modern era. There aren’t enough of those jobs. A structurally higher unemployment rate of 7% or more is the feared “whisper” number in Fed circles. Technology may be leading to slower, not faster economic growth despite its productive benefits.
 
4) Demographics
Demography is destiny, and like cancer, demographic population changes are becoming a silent growth killer. Numerous studies and common sense logic point to the inevitable conclusion that when an economic society exceeds a certain average “age” then demand slows. Typically the dynamic cohort of an economy is its 20 to 55-year-old age group. They are the ones who form households, have families and gain increasing experience and knowhow in their jobs. Now, however, almost all developed economies, including the U.S., are gradually aging and witnessing a larger and larger percentage of their adult population move past the critical 55-year-old mark. This means several things for economic growth: First of all from the supply side, it means productivity and employment growth rates will slow. From the demand side, it suggests a greater emphasis on savings and reduced consumption. Those approaching their seventh decade need fewer cars and new homes as shown in Chart 2. Almost none of them have babies (thank goodness!). Such low birth rates and a significant reduction in demand have imperiled Japan for several lost decades now. A similar experience will likely turn many developed economy “boomers” into “busters” within the next several years.

 

Investment Conclusions

I’m fond of reminding PIMCO’s Investment Committee that you can’t buy GDP futures – at least not yet. Hypotheses about real growth rates, no matter how accurate, must be translated into investment decisions in order to justify the discussion. Before doing so, let me acknowledge that these structural headwinds can and will likely be somewhat countered by positive thrusts. Cheaper natural gas and the possibility of reversing or even containing the 40-year upward trend of energy costs may be a boon to productivity and therefore growth. There is talk of the U.S. being energy independent within a decade’s time. Housing as well may be experiencing a multiyear revival. In addition, unforeseen productivity breakthroughs may be just over the horizon. How many gloomsters could have forecast the Internet or any other technical breakthrough before it actually happened? Jules Verne we are not.

But if a 2% or lower real growth forecast holds for most of the developed world over the foreseeable future, then it is clear that there will be investment consequences. Shown below, as recently published in a TIME Magazine article by Rana Foroohar, is a PIMCO list of future Picks and Pans based upon these ongoing structural changes:

Picks

  • Commodities like Oil and Gold
  • U.S. Inflation-Protected Bonds
  • High-Quality Municipal Bonds
  • Non-Dollar Emerging-Market Stocks

Pans

  • Long-Dated Developed-Country Bonds in the U.S., U.K. and Germany
  • High-Yield Bonds
  • Financial Stocks of Banks and Insurance Companies

The list to a considerable extent reflects the view that emerging economy growth will continue to be higher than that of developed countries. Their debt on average will remain much lower, and their demographic age much younger. In addition, the inevitable policy response of developed economies to slower growth will be to reflate in order to minimize the impact of the aforementioned structural headwinds. If successful, reflationary policies will gradually move 10 to 30-year yields higher over the next several years. The 30-year Treasury hit its secular low of 2.50% in July and such a yield may seem ludicrous a decade hence. Investors should expect future annualized bond returns of 3–4% at best and equity returns only a few percentage points higher.

As John Lennon forewarned, it is getting harder to be someone, and harder to maintain the economic growth that investors have become accustomed to. The New Normal, like Strawberry Fields will “take you down” and lower your expectation of future asset returns. It may not last “forever” but it will be with us for a long, long time.

 


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Tue, 12/04/2012 - 08:13 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Nice to see at least someone is feeling optimistic this morning.

 

I can do 10 years standing on my head.

Tue, 12/04/2012 - 08:18 | Link to Comment Dr Benway
Dr Benway's picture

It's the first ten years that are the hardest. After hope dies it becomes easier. 

Tue, 12/04/2012 - 08:51 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

So, blame Yoko Ono.  I'm fine with that.

Tue, 12/04/2012 - 09:03 | Link to Comment JPM Hater001
JPM Hater001's picture

How did Yoko get her nime?

First time john say her naked - Yoko - Oh no!

Tue, 12/04/2012 - 14:24 | Link to Comment Fredo Corleone
Fredo Corleone's picture

"Their position on...student loans..."

What of them ?

What would you have the Republicans do, Gross ? Offer up a forgiveness program which saddles the American taxpayer with Muffy's Seven Sisters' tuition, room and board tab ?

Tue, 12/04/2012 - 08:41 | Link to Comment Hobbleknee
Hobbleknee's picture

Is he referring to the traditional decade of 10 years or the 20-year decade, like Japan's lost "decade"?

Tue, 12/04/2012 - 09:27 | Link to Comment rocker
rocker's picture

Our Decline started in 2000. I believe in is going for 2020 at least. Japan did more like 30 years.

Except for Commodities which they don't really control. The "Bankster Cartel" have that all wrapped up. 

TPTB will always figure out how to drain the sheeple. Even Bush has gone to the Cayman Islands now. 

Tue, 12/04/2012 - 09:25 | Link to Comment CPL
CPL's picture

10 years?  No the recovery will be much quicker than that after the mob hang who they percieve to be at fault with their families.

 

I personally expect a witch hunt and the proper scracifies at the altar, the guility and the innnocent.  Like how it always happens in social resets.

Tue, 12/04/2012 - 10:04 | Link to Comment SheepDog-One
SheepDog-One's picture

WHOA wait a second, for 3 years we've been talking about 'Whoever is next president (Obama) will have to inform the country it is over'...now they're kicking the can to the NEXT president 'then things get bad'....WTF this is all horseshit.

Tue, 12/04/2012 - 10:25 | Link to Comment CPL
CPL's picture

No worries bud, they can't outrun the math anymore and the can has density and mass now.

 

There isn't a society or a world strong enough to kick it anymore.  Picture a line up of leaders from the world over lining up to kick the can only to break their foot on it.

Tue, 12/04/2012 - 08:12 | Link to Comment jvetter713
jvetter713's picture

I fail to see how packing 10 layers of band-aids on an infected wound implies healing will occur.

Tue, 12/04/2012 - 08:54 | Link to Comment Tirpitz
Tirpitz's picture

Who wants to heal? The system is designed to protect the cancer.

Tue, 12/04/2012 - 14:37 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

http://www.usdebtclock.org/

Assets:  87.4 trillion USD

Liabilities:  121.7 trillion USD

=

Bankrupt.  It's interesting to see it laid so bare and obvious.  The hole is 34.3 trillion USD, and is widening continuously.  Ergo, the "why" in divesting from countries like the U.S. (and "assets" backing the value of those countries) that are insolvent.

Tue, 12/04/2012 - 08:16 | Link to Comment youngman
youngman's picture

In 4 years the 47% will have grown to 56%...and its over..because they will vote for the biggest gift giver...not for work....

Tue, 12/04/2012 - 09:04 | Link to Comment JPM Hater001
JPM Hater001's picture

Work is all pansy and stuff.

Tue, 12/04/2012 - 09:33 | Link to Comment rocker
rocker's picture

The problem is the financial crisis that happened under the Phil Graham Bush error of No Regulations requried.

Financial Crises always take 20 to 30 years for recovery. They do more damage to the economies than any other.

We Are Worse than Japan Now.  This is the "Bush Legacy".  All others fall behind in a row until.

Tue, 12/04/2012 - 08:20 | Link to Comment Seasmoke
Seasmoke's picture

So things will get better in Obamas 4th term .. I knew he would fix it.

Tue, 12/04/2012 - 08:26 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Give us some mo....part deux.

Tue, 12/04/2012 - 08:56 | Link to Comment Tirpitz
Tirpitz's picture

"in Obamas 4th term"

Better let's see how long his 2nd reign will last...

Tue, 12/04/2012 - 08:20 | Link to Comment Samsonov
Samsonov's picture

"In the past decade, machines and robotics have rather silently replaced humans, as the U.S. and other advanced economies have sought to counter the influence of cheap Asian labor."

Just wait until the machines replace cheap labor.  In three quarters of the world, cheap labor is all they’ve got, and when they haven’t got that—look out.  Presently they’re perfecting a machine that can sew.  When that gizmo is ready to go, clothing will be made in factories that won’t even be recognizable as such, bland brick structures in a suburban office park, no smokestack, almost no workers, just trucks going in and out.  Simultaneously on the other side of the world, an entire village in India will suddenly have no work and no means of survival.  More to come…

Tue, 12/04/2012 - 08:33 | Link to Comment ghengis86
ghengis86's picture

they will call this machine that can sew, a sewing machine.  It will be the savior of textile mills. It will be built so small that even a child's hand could operate the simple controls!  It will make me rich, I tell you, rich!!  Bawahaahahahahaha!!!

 

wait, what's this? 

http://en.wikipedia.org/wiki/Sewing_machine

Tue, 12/04/2012 - 08:39 | Link to Comment Dr Benway
Dr Benway's picture

It is the trading machine that we should throw our sabots at

Tue, 12/04/2012 - 08:56 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

I'm looking forward to the legal logic reader software that understands syntax and parses meaning from litigation documents, rulings, responses, etc.  The jeopardy robot was a first step.

Tue, 12/04/2012 - 09:30 | Link to Comment imapopulistnow
imapopulistnow's picture

Software that makes attorneys obsolete?  Makes my leg tingle.

Tue, 12/04/2012 - 09:36 | Link to Comment SanOvaBeach
SanOvaBeach's picture

Another fucking self-appointed English teacher.  Is that the best you can do, asshole?  This is a financial blog not a fucking hyper-critical english grammer fuck machine.  Go blow yourself................ 

Tue, 12/04/2012 - 10:09 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

U mad bro?

Tue, 12/04/2012 - 11:09 | Link to Comment DaveA
DaveA's picture

"Legal logic reader software" is already in use:

http://www.nytimes.com/2011/03/05/science/05legal.html?pagewanted=all

Tue, 12/04/2012 - 09:04 | Link to Comment Samsonov
Samsonov's picture

Okay, ghengis, I left myself open for that.  I meant robots that can sew.

Tue, 12/04/2012 - 09:23 | Link to Comment ghengis86
ghengis86's picture

Yeah, you left it hanging over the plate and I couldn't resist. I'm sure someone will return the favor and I expect it. Keeps ya sharp.

Now, the self-aware sewing robots...that's when we know we're truly fucked.

Tue, 12/04/2012 - 08:35 | Link to Comment Col_Sanders
Col_Sanders's picture

At least then I won't have to listen to the incessant whining of never-ending new crops of over-privileged college students as they prattle about with their protest signs demanding that Nike or Polo stop exploiting a bunch of brown people in a country they've never seen firsthand, can't locate on a globe, and whose name they probably can't even spell.

Until the sewing machines become self-aware I guess... 

Tue, 12/04/2012 - 08:47 | Link to Comment Oh regional Indian
Oh regional Indian's picture

No work and no means of survival?

There is this thing called farming that is rather well understood in Indian villages, TYVM. DItto for the rest of the third world villages/ers.

Growing food, almost as old as the needle and the thread...FTW!

ori

Tue, 12/04/2012 - 09:14 | Link to Comment Tirpitz
Tirpitz's picture

The idea [of farming] is good, but how to grow crops with no land and the poison seeds controlled by Monsanto?

Tue, 12/04/2012 - 09:26 | Link to Comment francis_sawyer
francis_sawyer's picture

Better start [yesterday]... You harvest & heirloom your own seeds... What? Do you think yu get them at Wal Mart of Home Depot?...

Tue, 12/04/2012 - 09:05 | Link to Comment Samsonov
Samsonov's picture

The sewing robot was just one example.  Farming robots aren't far behind.

Tue, 12/04/2012 - 09:15 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

When do we get robot Congressmen?

Tue, 12/04/2012 - 09:44 | Link to Comment SanOvaBeach
SanOvaBeach's picture

We actually have them now!

Tue, 12/04/2012 - 09:50 | Link to Comment StychoKiller
StychoKiller's picture

If elected, I shall not serve!  So bite my splintery, wooden @ss!

Tue, 12/04/2012 - 09:31 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Are you totally stupid?  The cotton gin was a farming robot for christ sake.

Tue, 12/04/2012 - 10:52 | Link to Comment toomanyfakecons...
toomanyfakeconservatives's picture

If not a farming or harvesting robot, it certainly was a processing robot. The minute the GPS satellites or the petroluem supply chain goes down, mechanized harvesters go down, and millions, if not billions quickly starve.

Tue, 12/04/2012 - 09:43 | Link to Comment SanOvaBeach
SanOvaBeach's picture

The Sabo's are going to kill you...............................................

Tue, 12/04/2012 - 10:31 | Link to Comment Imminent Crucible
Imminent Crucible's picture

What worries me is if they develop robots to do the consumption. Then all of us are useless.

Tue, 12/04/2012 - 08:59 | Link to Comment Tirpitz
Tirpitz's picture

"wait until the machines replace cheap labor"

As long as it runs on contaminated drinking water, instead of precious petrol, it may become a real danger...

Tue, 12/04/2012 - 10:17 | Link to Comment Shizzmoney
Shizzmoney's picture

"wait until the machines replace cheap labor"

And by "machines" he means the Chinese.

Tue, 12/04/2012 - 09:15 | Link to Comment BandGap
BandGap's picture

Uh, they'll replace the trucks going in and out, too.

Tue, 12/04/2012 - 12:02 | Link to Comment WillyGroper
WillyGroper's picture

They've perfected a machine that actually fuses the fabric. No sewing required.

Tue, 12/04/2012 - 08:28 | Link to Comment fonzannoon
fonzannoon's picture

"There is talk of the U.S. being energy independent within a decade’s time. Housing as well may be experiencing a multiyear revival"

UMMMM BG loves him some CNBS

Tue, 12/04/2012 - 09:01 | Link to Comment Tirpitz
Tirpitz's picture

"the U.S. being energy independent within a decade’s time"

The miracles of a decade of depression...

Tue, 12/04/2012 - 08:29 | Link to Comment TruthBeforeAll
TruthBeforeAll's picture

Who or what is it that defines when we are "healed". And, what of those who are not healed at the appropriate time? Oh wait, maybe he meant heel as in what a dog does when his master calls.

Tue, 12/04/2012 - 08:32 | Link to Comment jumped_ship_and_swam
jumped_ship_and_swam's picture

Ten years won't do it.  It will take at least one generation to get over the attitudes instilled by public shools, universities, mainstream media and political discourse.  Things cannot improve until most people (1) can and (2) will work at jobs that produce value in the economy.  Making things and providing essential services, not shuffling paper, not makework jobs.  

Commentator is 100% wrong about people having children in their 7th decade.  Those of us with the courage to do it probably have the resources to make it work, the faith that things will eventually work out, a work ethic to pass on, and some real knowledge acquired in the schools of yesteryear or over the course of life.  The young are not having children.  Maybe they feel unfit.  If nobody does, then our culture perforce dies out.  Give the older worker a chance!

Tue, 12/04/2012 - 10:39 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"Things cannot improve until most people (1) can and (2) will work at jobs that produce value in the economy.  Making things and providing essential services, not shuffling paper, not makework jobs."

---------------------------------------------------------------------------

In order actually do anything, you need energy.  It is no suprise that computation "work" and paper-shuffling has become so popular. This doesn't require any serious energy expenditure.

Wake the fuck up and go talk to someone who has been in energy production.  The global production of energy has flatlined.  Ask yourself, has the human population stopped increasing?

That which cannot be sustained won't be.  Hedge accordingly.

If history is any guide, nothing will change until essential supply lines are broken and people realize that no matter how much money you have, it doesn't mean shit if there is no physical inventory in your area.  The soviets know this all too well, soon americans will as well.

Tue, 12/04/2012 - 08:34 | Link to Comment Herdee
Herdee's picture

You can be guaranteed that there will be more printing at the start of the year.We all know that this "cliff" is a distraction to reality.Any so-called cutbacks won't even budge the built in trillion dollar deficits.The Fed is going the Japan route.They will print until a lower value is achieved for the dollar.All at any cost in order to get there.You be the judge of the outcome to society.And to top it off,this arab spring situation is backfiring.More war debt will happen if the Syrian-Iran situation spirals out of control?If war plays out:Print,Print,Print...A form of economic warfare by Iran?

Tue, 12/04/2012 - 09:09 | Link to Comment Tirpitz
Tirpitz's picture

"The Fed is going the Japan route.They will print until a lower value is achieved for the dollar."

Not that I'd like that - but what else should they do? Protecting one's criminal bankrupt banks while pretending to act for the common good has its limits.

On the other hand, what damage does printing do, besides debasing the currency? The entire system is maimed by astronomical amounts of unrepayable debt, and until the banks can safely write it off on a calm Friday afternoon, Shalom Bernanke needs to try to improve the debt to balance sheet ratio by printing like a metastatic melanoma.

 

"A form of economic warfare by Iran?"

Now, how many heads holding an Iranian passport sit in the government? The enemy wears a yellow star!

Tue, 12/04/2012 - 09:31 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

they will print until a lower value is achieved for the dollar...

Accomplishing this was much easier when a gold standard existed. All soverigns could devalue their currencies against gold.

Now, all the currencies are floating and the soverigns are attempting to devalue their currencies against each other's currency... a race to the bottom at TD has said many times. As all currencies purchasing power decreases, due to the printing, the consequence is an increase in all commodities, otherwise known as real assets... as opposed to paper assets.

10 years might be an optomistic guess for fixing this FUBAR situation.

Tue, 12/04/2012 - 10:43 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Correct, the end game is world war or a single currency, period.  In the absence of another world war, it will be much longer than 10 years before anyone gives up their sovereign rights.  Look at history, no one ever gives up their sovereign rights knowingly or willingly.

Tue, 12/04/2012 - 11:04 | Link to Comment Enslavethechild...
EnslavethechildrenforBen's picture

The world currency already is a single currency made to appear to be different currencies.

The wars are world wide already too.

 The End Game, simply stated, is to slowly increase and secure the ratio ( human primates / enslaved human primates)

Tue, 12/04/2012 - 08:37 | Link to Comment LongSoupLine
LongSoupLine's picture

That's odd, Bill didn't mention the 1 fucking gazillion in derivatives risk that needs an exit somewhere.

 

it will take a fucking decade for that alone.  fucking cocksuckers.

Tue, 12/04/2012 - 08:40 | Link to Comment francis_sawyer
francis_sawyer's picture

Fuck Bill Gross... His entire career has been about being part of the problem & now he wants to make a death bed confession & pretend he's a good guy by offering sober warnings becaue the machine isn't feeding him anymore...

Just go away... (& wipe that cum splattered chocolate frosting off your face)...

Tue, 12/04/2012 - 10:18 | Link to Comment Shizzmoney
Shizzmoney's picture

This.

Big banks, and hedge funds and bond holders holding the people hostage are the problem.

Don't worry; they'll get theirs.

Tue, 12/04/2012 - 12:30 | Link to Comment Cosimo de Medici
Cosimo de Medici's picture

So never in your entire life have you held an interest bearing account or earned any interest whatsoever?  Or is the problem just that Bill Gross did it so much better than you?

As for "they'll get theirs", is that like the meek shall inherit the Earth?  Yea, that always happens.

Tue, 12/04/2012 - 08:39 | Link to Comment youngman
youngman's picture

Yes the world is starting to see that the USA is going to be weak for a long time..at least for 4 more years....and they are making plans to mess up the works...border wars...genocides..Shirya law countries...many changes will happen knowing the USA will do nothing...

On the other front they will also see the US dollar is not a good investment and will search...invent...change to a different reserve currency...

On the home front...inflation will be here with 2-5 trillion dollar deficits every year....and the Fed will be buying everything....the safe haven of the USA will fall apart...

States will seperate even more....the reds will become redder...the blues bluer.....trouble will follow...

Tue, 12/04/2012 - 09:21 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

...and those that ignore politics will ignore it with more vigor.

Buy PMs, ignore the ass clowns, enjoy life and don't worry about your assets being Corzined.

Tue, 12/04/2012 - 10:23 | Link to Comment SanOvaBeach
SanOvaBeach's picture

Be more specific when you say, "trouble will follow."

Tue, 12/04/2012 - 08:45 | Link to Comment Ralph Spoilsport
Ralph Spoilsport's picture

"the economic question of the 2012 election"

There was no 2012 election. It was an expensive dog and pony show for the sheeple. Even the two actors playing presidential candidates showed they thought it was all a big waste of time for everybody. Elections are now considered quaint and will be eliminated in the future.

Tue, 12/04/2012 - 08:54 | Link to Comment Chuck Walla
Chuck Walla's picture

 after the euphoria comes the hangover, completely irrelevant of what happens to the Fiscal Cliff: 'whoever succeeds President Obama, the next four years will likely face structural economic headwinds that will frustrate the American public.

These greedy, grasping no self-repsecting dickwads elected this train wreck, not once, but twice. Enjoy the ride, its hard to steal from another man's paycheck if he isn't working!  Hey, I know, Lets print what we need!

FORWARD SOVIET!

Starve the Stupid, Kill the Unproductive! Obama Care, coming soon...

Fabians of the World, this is your moment!

Tue, 12/04/2012 - 09:12 | Link to Comment Tirpitz
Tirpitz's picture

"Kill the Unproductive!"

So how would we get along without a banking system?

Tue, 12/04/2012 - 08:56 | Link to Comment lynnybee
lynnybee's picture

does this include 10 years of suffering for those at the Wall St. fraudsters ?    how bad are they going to suffer ?   WHAT ABOUT THE FRAUD, MR. GROSS!?    when will BERNANKE & his ilk suffer ?   

Tue, 12/04/2012 - 09:01 | Link to Comment Quinvarius
Quinvarius's picture

You need to take personal responsibility for their suffering or it will never happen.

Tue, 12/04/2012 - 09:00 | Link to Comment Quinvarius
Quinvarius's picture

Markets will remain on autopilot.  Anything else wrecks the system.  The only thing we will notice is massive inflation as the cost.

Tue, 12/04/2012 - 09:05 | Link to Comment alfred b.
alfred b.'s picture

 

    10 years???

How about that, it's the same time-frame that they're giving Greece!

   Somehow I think that Gross is trying to protect us from the harsh reality of serfdom!

    Save yourself...Buy physical gold and silver!

 

Tue, 12/04/2012 - 09:14 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

study: American households hit 43 year low in net worth

http://washington.cbslocal.com/2012/11/30/study-american-households-hit-43-year-low-in-net-worth/

10 years to turn this around? Or, ten years to complete the train wreck?

There are sound reasons that US Mint sales are on the rise again... even if most of those buying do not know the precise reasons they are buying they have a very uneasy feeling about where their leaders are taking them.

Tue, 12/04/2012 - 10:31 | Link to Comment MyBrothersKeeper
MyBrothersKeeper's picture

Forward! ....just don't forget that "forward" is the new assbackwards

Tue, 12/04/2012 - 09:16 | Link to Comment Rustysilver
Rustysilver's picture

What Bill Gross is saying is that it will take about 10 years for people to rebuilt their accounts before stealing resumes.

Tue, 12/04/2012 - 09:27 | Link to Comment yrbmegr
yrbmegr's picture

"Rather than an economic mandate, November’s election was more of social commentary on the Republicans’ habit of living with eyes closed."  Except that Obama campaigned very prominently on the need for taxes to rise on the wealthy, and people voted for it.  A majority of voters understand that federal revenues are out of line with history and need to return to "normal" as part of an overall solution to the nation's fiscal problem.  That majority also understand that wealthy people pay lower tax rates than non-wealthy people, and that corporate people uniformly pay lower tax rates than non-corporate people, and they think that needs to change.

Tue, 12/04/2012 - 14:53 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

"A majority of voters understand"

http://www.youtube.com/watch?v=WBk32OUxCnU

Ladies and gentlemen, I present "a majority of voters".  They don't understand shit.

Tue, 12/04/2012 - 09:28 | Link to Comment orangegeek
orangegeek's picture

Healing?  We're still in denial.  We are still a few years out from the bottom of these markets.  Then maybe some healing might occur.

 

http://bullandbearmash.com/chart/sp500-weekly-marginally/

 

NYSE and NASDAQ are the last two exchanges to head south.  Europe and Asia did so in 2010 and 2011.

Tue, 12/04/2012 - 09:31 | Link to Comment imapopulistnow
imapopulistnow's picture

 

These are not theories, they are simple facts.

Bill Gross nails it with this article.

Tue, 12/04/2012 - 09:39 | Link to Comment imapopulistnow
imapopulistnow's picture

Demographics is the least understood trend of the four.  Old farts consume less of everything except health care and booze and these do not make up for the lack of spending in the others.

A big part of any economy is the "growth sector"; the additional houses, autos and other things that come with growing consumption.  Lost (20 year) decades happen when consumption stops growing.  We boomers are becoming old farts. Consumption has stopped growing. It is a fact.

Tue, 12/04/2012 - 09:42 | Link to Comment imapopulistnow
imapopulistnow's picture

Japan's lost decade began 15 years before ours and Europes, because their society crossed the deomgraphic threshold 15 years earlier.  When you inderstand it was demographic driven, it all makes sense as to why they cannot get out of it regardless of the ZIRP/QE/Deficit spending policies/ etc. etc.

Tue, 12/04/2012 - 09:50 | Link to Comment imapopulistnow
imapopulistnow's picture

Tack on the automation trend and it gets really interesting.  Instead of every nation trying to advance technology independently, it now is advanced globally.  Thus instead of the USA, Germany, Japan each advancing their own technology, billions of folks through out the world are collectively working on it and the advances are happening at a faster rate than economies can compensate with new job creation. 

Also, Moore's Law is lowering the cost of shifting brain power to chips at an accelerating rate.  Those value added jobs that productivity created in the past are now also being automated.

Tue, 12/04/2012 - 09:56 | Link to Comment imapopulistnow
imapopulistnow's picture

And finally, developed nation debt and globalization stem from the same source - China and other emerging nations pursuing mercantile strategies where they subsidize exports and then buy developed nation soveriegn debt to stimulate demand.

It worked fine when Japan did it because Japan's economy - population - was small enough that it did not overwhelm the developed economies.  China does.  It has 2x the population of the USA and Europe combined.  Our economies cannot adjust quicly enough to such a masive disruption and hence we are in decline.

Tue, 12/04/2012 - 09:36 | Link to Comment IamtheREALmario
IamtheREALmario's picture

Just a side effect of living in a world ruled by Satan and his petty minions (elitists). "It WILL all work out". It is transition time when Satan must relinquish his power to the new regime ... 1, 2, 3, 4 ... 1.

The age of chaos is ending.

Tue, 12/04/2012 - 09:45 | Link to Comment bugs_
bugs_'s picture

Andrei......you've lost ANOTHER decade?

Tue, 12/04/2012 - 09:52 | Link to Comment Optimusprime
Optimusprime's picture

Fuck Bill Gross with his casual white-baiting.  God are we sick of it.  Pray for a day of reckining with the bastards.

Tue, 12/04/2012 - 10:00 | Link to Comment topspinslicer
topspinslicer's picture

a decade of healing perhaps but the blood gushing like old faithful has only just begun (to quote Karen Carpenter)

Tue, 12/04/2012 - 10:09 | Link to Comment imapopulistnow
imapopulistnow's picture

Gross writes: "In addition, the inevitable policy response of developed economies to slower growth will be to reflate in order to minimize the impact of the aforementioned structural headwinds"

I wonder if this is even posible.  Japan has been mired in deflation for 2 decades inspite of throwing everything they got at the problem - yes it is a problem.

With our similar demographic shift, how is it that we will be successful at doing anything differently?

Tue, 12/04/2012 - 10:17 | Link to Comment Chaos_Theory
Chaos_Theory's picture

War is the answer....solves demographics, solves automation, solves unemployed "yutes" to quote My Cousin Vinny.  Not brushfire COIN wars, but WWII daylight bombing raid wars, with lots of Krugman wet-dream infrastructure damage, lots of (preferably old) dead civilians, and lots of dead young cannon fodder who won't live to collect pensions or disability bennies.  And lots of elites in the Ivy League who live to lead us out of the horrors!   

Sad thing is, I started typing this as sarcasm, now I fear it's the plan!

(Drones or RPAs as the military call them aren't automated...at the other end of their control links are a flight crew of 3, a sensor exploitation crew of 8, a maintenance crew of 4, ammunition loaders x2)

Tue, 12/04/2012 - 10:43 | Link to Comment toomanyfakecons...
toomanyfakeconservatives's picture

Thank you. Drones and robots can't do shit without a huge human and materials supply train following them around. I say again, you've seen the heyday of smart weapons. Guerilla warfare and insurgency on the other hand isn't even near it's potential peak.

Tue, 12/04/2012 - 10:19 | Link to Comment Shizzmoney
Shizzmoney's picture

Inflation without Representation.

Tue, 12/04/2012 - 10:44 | Link to Comment stockscooter
stockscooter's picture

In regarding Pimco's picks and pans, I'll respectifully disagree with buying muni's and Treasury Inflation Protected Securities.  They are in the worst bubble currently.  California muni's maybe popping right now (http://stockscooter.wordpress.com/2012/12/03/10-days-of-fear-for-the-pri...)  and coservative TIPS will bring down the house (http://stockscooter.wordpress.com/2012/08/05/investment-tip/).  They have over a 35% premium, which current holders think is from the inflation adjustment.  It's from pure speculation.  So these conservative investors are going to lose big, and it will be very soon. These mom and pops think the appreciation is locked-in and guaranteed...NOT!  After these crash, then Gross has a good point about owning them for the long-term future.

Tue, 12/04/2012 - 10:54 | Link to Comment MyBrothersKeeper
MyBrothersKeeper's picture

You people that are bashing Gross need to rethink.  I have been dealing with PIMCO for a number of years and they are likely the most straightforward investment company you will find.  They deal in reality and not hype.  They are really flexible/adaptive for a big operation and although they miss some things, they always have solid rationalle for why they did something.  Remember that when everyone was losing their behind in 2008 PIMCO TR returned +6%. Due to his selling of Treasury's last year TR underperformed the Barcaly's Aggregate for the first time in forever but still beat the S&P with a 3% return with much less risk.  They have some equity funds based on derivatives but their derivatives are not some obscure, 3 layered counterparty, they simply leverage options on indexes like the Russell and S&P.  Those funds rank in top 10% of category as well.  Their LC Blend fund is up 23%. They have been brilliant in frontrunning the Fed this year in their TR and Income funds.  PIMCO Income I share pays a 6.5%+ yield and has a total return over 20% ytd.  It is ranked in top 1% of it's category for 1 yr/3yr/5yr intervals. Well performing products, transparency, and communication....i'm not sure what else you could want.  BTW they pay their cap gain distributions on Dec 11.  After that you will a potential entry point depending on your situation.

Tue, 12/04/2012 - 12:23 | Link to Comment stockscooter
stockscooter's picture

PIMCO is a good fund company. Since it's the 800 pound gorilla, politics are heavy there.  Gross is great in dealing with these politics.  The boy is a genius and one of my favorite analysts.  However, making "picks" like the ones noted is really picking the least evil from the bunch.  They want investors to keep money with them, during the rout that's about to occur. They are caught between a rock and a hard place.  They usually maneuver well in such circumstance.  This time there asset base is going to shrink big time. Have you checked out PHK lately? It is under performing JNK.  (http://stockscooter.wordpress.com/2012/12/04/whos-junk-is-better/.  Maybe the Peter Principle is taking over.

Tue, 12/04/2012 - 14:18 | Link to Comment MyBrothersKeeper
MyBrothersKeeper's picture

I've never used PNK.  I have used JNK a bit.  I would never advocate using only one fund family.  I mean when PIMCO was recommending Muni's and I liked the thought behind it, I went with Nuveen's All American and HY Muni. You have to be able to evaluate what you want and the risk/reward behind the advice. Personally, I have been using their funds with good yields and sprinkling in some others from other families. I'll take yield and lower risk now for income.  TR just added more treasuries today as they again try and frontrun the fed.

I don't see a giant bond bubble now as many do because bonds are a lot more diversified than equity markets.  Credit metrics that break down in one area don't necessarily bleed into others like they do in equities which start in bubbles like technolgy but then drag down equities across most sectors. Retirees etc are not going to capitulate out of bonds as a reaction to market forces as easily because they still need income. I do see long duration bonds being the most vulnerable.  The key, at least in my mind, is to stay nimble and be ready to move to cash and/or hard assets and also take some short positions.

As someone said, the central banks may just keep pumping up assets for several years but how long before before we get an event that creates instantaneous chaos in the world economy.  I mean the central planners are riding a thin rail at maximum speed but something unexpected will happen that is beyond their control and the pundits will no longer be able to hide behind the fog.

I don't see how the Peter Principle can ever be applied to Bill Gross...he's proven he knows what he is doing better than most despite the challenges

Tue, 12/04/2012 - 19:07 | Link to Comment stockscooter
stockscooter's picture

The something unexpected, of which you speak is credit related.  It's been my contention that we have a perfect storm, and the powers that be are trying to use smoke and mirrors (the fiscal cliff) to hide it.  What we have are two powerful forces. Whether the government statistics show it or not is to be discussed another day, however I believe we will have deflation AND higher interest rates.  Most say that deflation accompanies a weak economy, therefore rates are lowered or held low to stimulate the economy.  Usually so, but I do not believe deflation is joined at the hip with interest rates.  I believe this to be the first time that they will decouple (http://stockscooter.wordpress.com/2012/09/18/prepare-for-the-worst-hope-...).  The Fed won't be able to lower rates because the rise will be on the long bond.  What will create higher rates, you ask?  The next down grade of the U.S. Treasury Bond.  Perceived risk will rise and rates will increase.  What a deadly combination, deflation with rising interest rates. The government insiders know it and will be selling their bonds before the rise in rates.  When rates rise, you can be sure a down grade will be coming soon after.

As for Bill Gross, one of my all-time favorite analysts, he will never succumb to the Peter Principle.  The dude is brilliant.  My real point was that PIMCO, being the behemoth that it is, may be getting too big to manage effectively.

Tue, 12/04/2012 - 11:11 | Link to Comment DaveA
DaveA's picture

The healing cannot begin until the stabbing stops.

Tue, 12/04/2012 - 11:38 | Link to Comment Radical Marijuana
Radical Marijuana's picture

Hah! The King of Bonds is inside his own bubble. Anyone who thinks there will be healing in a decade is delusionally unaware of the diagnosis. Our entire civilization has terminal illnesses!  Sure, there are lots of THEORETICAL creative alternatives, but there is no reasonable basis to believe any of those will be implemented, until after the established systems finish driving themselves more mad, and therefore, through their own self-destruction!

The primary problem is the basis of the bond market itself! The bond holders are the primary pyramidion people, at the top of the social pyramid system. They are completely conditioned to either not know how their system really works, or, at least, to not overtly admit that. The ONLY way there could be a better prognosis is through radical paradigm shifting, regarding just about everything, which is practically impossible. Therefore, instead, runaway social insanity becoming suicidal is the most probable outcome.

Regarding the 4 points:

The debt slavery has become debt insanity, almost everywhere, and the few places that are not yet there soon will be. Delevering will occur when the levers break, because nothing else saner will be done first instead. The fundamental basis of the systems need to be redesigned, otherwise, they will continue to be tested to destruction.

Globalization has given the ruling elites practical impunity to force all countries to race to the bottom, while being unable to do anything for their own people, within their own borders. Globalization was done by the elites, for them, and, like everything else, will result in final failure from too much "success."

Technology is way, way more exponential than this article realizes! Science fiction is becoming science fact faster and faster, with potential downsides beyond our imagination! All the rest of the problems are being astronomically amplified by the growing gap between a society with advancing technologies, being still controlled by backwards and deliberately stupid religions & ideologies! Since this is the most important of those four, here is another superficial, mainstream review of that runaway, out-of-control situation, which again, almost nobody has the intellectual tools to cope with:

http://www.theatlantic.com/magazine/archive/2012/11/hacking-the-presiden...

Finally, the trump card, demographics, where the devil is in the details. There are huge differences, which are all systematically backwards to anything that would make sense in the longer term. Those who are limiting their reproduction are still being overwhelmed by those who are not. The entire world is being overwhelmed by the twin trends of those who are reproducing less than replacement rates, combined with those who are still growing unsustainably. There are plenty of goofy aggregated average data, that do not paint nearly as bad of a statistical picture as what is happening.  Most of the so-called developed world will be demographically overwhelmed by trends that are apparently already way too late to stop. The total population is NOT levelling out in a balanced way, but rather only levelling out in an averaged way, that ignores how much more unbalanced it is becoming!

All of these fundamental problems are deeply structural, and utterly out-of-control, since the established systems were built on the basis of being able to not talk about reality, but rather to substitute a fragmented fantasy culture in its place. The whole world is directed by professional liars, and immaculate hypocrites, whose short-term career "success" depends upon them continuing to be as incompetent as possible, for as long as possible.

The real world is based on huge lies, backed up by lots of violence, and everybody who is "successful" now depends upon that system continuing, and them continuing to benefit from operating inside of that system. Therefore, although, theoretically, there are plenty of possible creative alternatives, none of those treatments for our social sicknesses and insanities are possible to apply inside of practical politics, while, instead, all these trends identified above are automatically getting worse at accelerating rates.

The entire bond market is the leading edge of runaway triumphant frauds, whose basic structure IS the problem. The only possible "healing" would take miracles cures, from a series of political miracles. So far, there are no good grounds to believe that those are possible. They are "miracles" precisely because their actual probability of happening are practically zero, especially since it would require a series of integrated political miracles, for the overall design revolution to be sufficient.

In fact, people have ALREADY chosen their future: 99% Zombie Sheeple, herded by 1% Vicious Wolves, who also have the same mad sheep diseases, all agreeing by default to continue stampede towards collective mass suicides. The biggest problem is that the already established systems depended upon the history of militarism, which depended on murder systems being operated with the maximum possible deceits. Everyone who benefits from the civilization which was developed that way (especially including the bond holders) depend upon a combined money/murder system. That system was built with the maximum possible social deceits about itself, and therefore, fixing any of the runaway problems caused by that, namely our collective social sicknesses and insanities, must be attempted inside a system which as immune as it possibly can be to the radical truth about itself, which provides the only genuine cures. The established systems are built to automatically reject what would be required to heal them, and so, good cures are practically impossible to administer. Instead, only things that make us sicker and more insane are accepted within those established social systems.

Tue, 12/04/2012 - 15:03 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

"99% Zombie Sheeple, herded by 1% Vicious Wolves"

http://www.youtube.com/watch?v=Re644qgnCtw

Which is why free thinking people should consider adopting the visage of the Eagle.  

Wed, 12/05/2012 - 05:07 | Link to Comment Radical Marijuana
Radical Marijuana's picture

Well, Panafrican Funk, the coincidences in the video you picked to respond with tickled by fancy!

Several decades ago, I used to amuse myself by taking large amounts of LSD. During one particularly massive overdose acid trip, I turned into a "Golden Eagle" soaring above the landscape of power in North America. At that level of "hallucination" one no longer knows that one is hallucinating, rather, as far as one is concerned, at the time, the feeling is literally true.  That is, at that time, I felt like I was a Golden Eagle! There was nothing left like "this is me imagining" that I was a Golden Eagle, but rather total immersion in being that big bird, soaring high above North America, looking down on the landscape of power below me. Later I figured that every aveoli in my lungs became a feather, as I aviated on the wings of ideation. However, at the time it was happening, I believed that I was a Golden Eagle, actually flying high above North America, looking down at the power generation and distribution systems there.

Tue, 12/04/2012 - 12:30 | Link to Comment gaoptimize
gaoptimize's picture

Exactly what will be the cure that will start the healing?  The disease is socio/political, it is worsening, and the patient is on life support.  There will be no recovery in 10 years.

Tue, 12/04/2012 - 16:31 | Link to Comment woggie
woggie's picture

the beast is on the gobble
and all that matters is we're all headed for it's belly
http://youtu.be/ntmthFyaYzY

Tue, 12/04/2012 - 16:35 | Link to Comment akak
akak's picture

How many fucking times are you going to post that EXACT same off-topic comment?

Fuck off, spammer.

Do NOT follow this link or you will be banned from the site!