Tuesday, July 1, 2008

Bill Gross sends letter to the future President

In his latest Investment Outlook for July 2008, legendary bond fund investor Bill Gross sends a stern message to the future President of the U.S. which he presumes will be President Obama. This person, whoever it might be will be well advised to read it carefully since it allows a rare glimpse into the future of the economy, an outlook for investments and the best government response to all that. But of course, this is advise not only for people on high places, to the contrary every person interested in the economy and which way its headed better spare a couple of minutes. You can read the full report here.

Bill Gross IO July 2008 (parts)
Dear President Obama:
You have inherited a mess. Your predecessor, fixated on emulating a former Republican icon from a far different economic era, chose to emphasize tax cuts for the rich and excessive consumption for all Americans. He promoted deregulation and free markets when, in fact, the markets and their institutions needed tough love. Over eight years, he failed to put forth a coherent energy policy. He needlessly invaded Iraq and lowered worldwide esteem for this nation as a symbol of freedom and benevolence.

But you’ll have your tax bill and your healthcare bill and your housing fix, and somehow it’ll all be paid for by wealthy hedge fund managers, oil companies or, pray tell, a robust economy that’s creating good jobs at home instead of exporting them abroad. Uh, I don’t think so, Mr. President. That’s where the “yes we can” morphs into “no we can’t.” Not that you won’t accomplish most of that – the robust economy and the good jobs notwithstanding. It’s just that you won’t be able to pay for it and it’s better to admit it now as opposed to later. No David Stockman confessions in your administration. You’re smarter than Ronald Reagan and too nice of a guy to distort reality like King George. So let’s start out by dropping all of that “budget neutral” rhetoric and admit where we’re headed. Your administration will produce this nation’s first trillion dollar deficit!

Its potency regarding inflation will not be felt fully during the peak deficit period. Rather, inflation will accelerate during the subsequent recovery as the government bonds acquired during the recession are transformed once again into risk bearing assets and high levels of investment. That suggests that intermediate and long-term yields on government bonds have already bottomed and will gradually rise throughout your first, and perhaps second Administration. Your term will not go down in history as investor friendly.

In the final analysis I wonder why you or anyone else would want to be President in 2009. But there’s the ego thing and a hope for a better tomorrow and all that. Come to think of it, “President Obama” does have a certain ring to it. When I listen to your speeches, you even have me half convinced!
All the best, and a fist bump to ya!
William H. Gross
Ordinary Citizen

source: Investment Outlook, Dear President Obama:
Bill Gross | July 2008

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