February 28, 2006

Wonk alert: Pimco's Gross spells it out


I'd trust this guy with my net worth and the keys to my house. Brilliant economist, always spot-on in my experience. And this March 2006 report is one of his best:

A copy of the annual Economic Report of the President arrived at my desk the other day, replete with a giant bald eagle on the cover and formatted, incredibly enough in OVERSIZED print – fit for an aging boomer population. My compliments to the chef, at least for the exterior garnishments. The verbiage however, was another story.

It’s not so much that the report was a compilation of untruths or even half-truths. It’s just that it failed to tell the truth, the whole truth, and most definitely nothing but the truth. Although submitted by ex-CEA Chairman and newly christened Fed Chairman Ben Bernanke, it was as if it had been written by Dick Cheney, a man who not only cannot shoot straight but seems to have difficulty talking straight as well.

If there were WMD in our economic future, you’d be hard pressed to find them here. Mild innuendos about global and demographic challenges yes, but nothing that couldn’t or wouldn’t be overcome with good old American ingenuity, hard work, and a fawning foreign investment public nearly trampling each other to get their hands on attractive U.S. "investments."

Nowhere to be found was the catchy phrase à la Tennessee Williams referring to the "kindness of strangers" or a suggestion of "living on borrowed time." Our 700 billion dollar current account deficit, in fact, could and might continue "indefinitely" as long as we use the capital inflows in ways that promote future growth, the report intoned.

Ah, but that, it seems to me, was the critical rub. Have we, can we, will we use capital to foster future growth or must we earmark it for future liabilities that have been under-reserved? Have we borrowed from the future to pay for today’s party and will our future creditors allow us to pay it back on our own terms with low yields and a strong dollar? While the gang that couldn’t shoot (or talk) straight expressed few doubts, I as you can probably tell, have mine. Let me summarize a few of the pertinent chapters of this year’s report to help you make up your own mind

Here's his conclusion. Run folks. Run for the hills. And get your money out of dollars and out of the US market. Tilt.

Instead, our solutions more likely will pursue an easier trail, characterized by currency devaluation, the inflating away of long-term pension liabilities, and the payment of rising healthcare expenses via higher personal and corporate taxes. Investment markets in the United States will not ultimately prosper under such an increasingly odorous environment. It is only sensible, therefore, to diversify globally. Sorry for the straight talk folks, but don’t you think it’s about time?

18 comments:

Anonymous said...

Doom and Gloom. I love it. Economists have been preaching this stuff for decades.

Here is my advice for protecting ourselves:

1. Live debt free. A home mortgage is the only loan that even comes close to making sense. Lock in the rate now, it's only going up. Paying cash for everything else is a must. Live within your means.

2. Invest in inflation protected investments like I-series bonds. Boring, but a great hedge against inflation. The federal govt has to devalue the dollar to survive longterm.

3. Invest in tax-free or tax friendly investments. Municipal bonds, dividend yielding stocks, etc.

4. Learn a skill. Ideally learn a skill that is not easily learned or can be outsourced. Distinguishing yourself from the general population is the only way to build job security. Actively market yourself and be flexible. The average job only lasts 7 years now.

Do these things and you'll be recession proof.

Anonymous said...

Anyone besides me notice the flattening out during the Clinton years?

And the huge increases during the republican years before and after him?

Dogcrap Green said...

There is a minor flaw to the chart.

(Although I have no explantation for Britains) The chart is flaw for the Americans. As much as you all like to talk about ourr expensive housing. We are one of the few countries in the world where a truck driver or secratary can buy a house with no money down and have it paid off in 15 years.

That truck driver who bought a $150,000 house in the course of 15 years saved on average $10,000 per year - or 20% of his income.

Many don't live like this, but I assure you if we recognized those who save through the down paying of a house over time. America would be recognized as a saving nation, not a borrowing one.

Anonymous said...

a truck driver or secratary can buy a house with no money down and have it paid off in 15 years

Sure, if that secretary lives in a tiny, dusty burg in the middle of nowhere, yet still makes $100,000 per year.

Dogcrap Green said...

A secertary in Baltimore makes $50,000. She can buy a house here for $100,000 to $150,000 and pay it off in 15 years.

Anonymous said...

In Baltimore, a secretary can make $50,000? And buy a house for $100,000??

In my neck of the woods, a secretary makes $40,000 and houses are $500,000+. A crappy, tiny CONDO in a bad neighborhood is $200,000.

I must be living on the wrong end of the continent. Either than or Baltimore is a worse place than I realize.

Ferromancer said...

I think a better example would be flyover country, say, champaign-urbana IL, which has a decent amount of culture for a smaller town. A secretary can make about 30K per year, the median priced home is 140K. This means that a two-bedroom 1-storey house (yet with a sizeable lawn and close to the university) will net you 80K, and you can get a mansion in a subdivision for 250K. I rented the former for 750 a month, and you can conceivably pay less if you're subletting, which is quite common there.

However, having grown up in Chicago, I had to move back into the big city. Having spent six years in Champaign, I consumed most of the cultural experiences avaiable in the area. Also, the countryside is very flat and is mostly corn and soybeans. However, there is a beautiful unversity-run park 30 minutes away and some gorgeous state parks one to two hours away.

All in all, research an area before moving to it, and carefully weigh your loss/gain in income, loss/gain in housing prices, loss/gain in cultural capital, and loss/gain in natural beauty. Proximity to friends and family is also important. After carefully weighing everything, *personally* I found Chicago to be a better deal based on my value systems. YMMV.

Anonymous said...

Inflation indexed bonds? Just remember who sets the index -- yep, the same federal government that is creating this mess. Why would you trust them to be honest in their bookeeping for bonds when they are lying through their teeth on the CPI?

Tax free investments? LOL! Watch what happens when local and state governments start to get strapped for revenues. Jesse Jackson floated a plan for a one-time (haha) 15% tax on retirement accounts. You don't need all that money, do you? I can see the long arm of governmment reaching in to those IRAs and 401Ks to take what is "needed".

IMO the next economic "big one" is going to be a defining moment is this nation's history. Politicians will fall over each other to suck up to the have-nots, and people with wealth and independence (ie. those who prepared) will be portrayed as unpatriotic "hoarders". I don't see it ending peacefully, or this nation surviving as a republic.

James Baker said...

I just came across your blog and wanted to
drop you, Blogger, a note telling you how impressed I was with
the information you have posted here.
If you have a moment, please visit my site:
credit center
It covers credit center related contents.
I send you warm regards and wish you continued success.

Paul Adams said...

Hi Fellow! I was just searching blogs,and I found your site! I like it!
If you have a moment, please visit my site:
credit center
It covers credit center related contents.
All the best!

Paul Adams said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
I also have a web site & blog about credit center so I know I'm talking
about when I say yours is top-notch! Keep up the
great work, you are providing a great resource on the Internet here!
If you have a moment, please visit my site credit center
Best success!

Anonymous said...

Surfing for information on real estate, and I stumbled across your blog. Interesting work. Good read. Visit my site if you have a chance.

annual credit report .com said...

I was searching blogs,and I found yours.Please,
accept my congratulations for your excellent work!
If you have a moment, please visit my annual credit report .com site.
Have a good day!

annual credit report .com said...

I was searching blogs,and I found yours.Please,
accept my congratulations for your excellent work!
If you have a moment, please visit my annual credit report .com site.
Have a good day!

article card consolidation credit debt said...

Hi Blogger, I found your blog quite informative.
I just came across your blog and wanted to
drop you a note telling you how impressed I was with it.
I give you my best wishes for your future endeavors.
If you have a moment, please visit my article card consolidation credit debt site.
Have a great week!

article card consolidation credit debt said...

Hi Blogger, I found your blog quite informative.
I just came across your blog and wanted to
drop you a note telling you how impressed I was with it.
I give you my best wishes for your future endeavors.
If you have a moment, please visit my article card consolidation credit debt site.
Have a great week!

article card consolidation credit debt said...

Hi Blogger, I found your blog quite informative.
I just came across your blog and wanted to
drop you a note telling you how impressed I was with it.
I give you my best wishes for your future endeavors.
If you have a moment, please visit my article card consolidation credit debt site.
Have a great week!

Anonymous said...

Debt Settlement
Debt Relief can help you reduce your interest burden by charging an interest rate lower than the rate on your existing loans. Debt consolidation loan can also allow you to make small monthly payments by extending the loan period
http://www.debt-consolidation.com