Bill Gross, managing director of the world’s largest bond fund, (whose star has become a little tarnished this year) has advice for investors and, sadly, for all of us—get used to it:
If structural solutions are not put in place, a six-pac market observer should look at both stocks and bonds as rather flabby knock-offs of their former selves; no resemblance at all to Jack LaLanne but more to a 55-year-old terminator grown fat and rendered out of shape by years of neglect and perhaps greed for short-term profits as opposed to long-term balance. There are no double-digit investment returns anywhere in sight for owners of financial assets. 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. A modern day, Budweiser-drinking Karl Marx might have put it this way: “Laborers of the world, unite – you have only your six-packs to lose.†He might also have added, “Investors/policymakers of the world wake up – you’re killing the proletariat goose that lays your golden eggs.â€
As with many commentators recently his message is one of the problems posed by growing income inequality. Unfortunately, also as with many commentators, his ability to diagnose the problem is a lot better than his advice for curing it which seems limited to other managers resolving to pay their employees more and a “Buy American” program. Clearly, Mr. Gross hasn’t looked at the content of consumer goods lately. It’s darned hard to buy American even if you want to. If you buy a small car, the odds are extremely good that its engine was made in Japan or South Korea. If you buy fresh meat, it’s probably American. If you buy frozen prepackaged meat, chicken, fish, or seafood, it’s probably from Asia, Latin America, or Australia.
Relatively few consumer goods are 100% made in the U. S. A. any more.
With any luck Arnold Schwarzenegger, the Austrian-born former governor, former actor, former body-builder, former 100 lb. weakling, may be a better metaphor for the United States than Mr. Gross realizes. As Mr. Gross observes, he’s showing his age. However, over the years he’s shown a remarkable ability to re-invent himself. That’s what we’re going to need to do.
One wonders if all the defined benefit pension programs out there will still assume 7-8% return when making their actuarial calculations.
There’s definitely a trend going of people who can diagnose the problem but can’t offer much for solutions. Two possibilities: Either we collectively lack imagination to see a viable path forward or there is no viable path forward. Either way, it’s not good.
On a personal note, I wonder what I should do for my own financial future and I have no idea.
I don’t believe either one of those for a second. What I do believe is that the Powers That Be don’t see any way of solving the problems we have without changing the status quo. Since preserving the status quo is all that really matters to them from their vantage point there’s no solution.
Damn….html failure.
As I’ve pointed out before, a solution (although I don’t believe it has a chance in hell because of almost religiously held beliefs in government, entrenched interests and a propagandistic media) is for the government to get the hell out of the way.
For 50-60 years the nation has been embarked on a failed strategy: transfer resources fom the private sector to the inefficient public; use those resources to throttle the private sector and subsidize the unproductive; and when it doesn’t work………double down. And its all cleverly done in the name of “caring” and “protecting.” Now “caring” and “protecting” are all fine and well. But the world is not static.
So in a robust economy, full of resources like ours, it takes quite a long time for the corrosive effect of this strategy to manifest itself. Accelerating this, we’ve now seen the rise of competition – the “BRICS.” Further, you can be sloppy in your resource allocation and subsidize everything from welfare mothers to big banks to union driven auto-companies-as-piggy banks. But you eventually exhaust that. Put it all together and we are on the edge. And everyone is pointing fingers and saying “who knew?”
False surprise. And now the scapegoating.
Energy is key. I’d immediately drop all the green BS – electric cars and solar etc. Make those long term research priorities. US manufacturing would be a primary beneficiary.
Support commercialization of shale oil now. Gain energy independence so we can stop plowing resources into the Middle East. (Obama could go down in history as a great President – a meaningful change agent Presidency (think Louisiana Purchase) – if he adopted this policy. Don’t hold your breath. He’s a small man.)
Think nuclear long term.
Change the regulatory environment, with all the infantile “they want to poison the children” rhetoric which is all just code for: “give me campaign money and I’ll get exempt you from this ridiculous regulation.”
American Economy:
“I’ll be back.”