Wednesday, February 6, 2013

It's The Economy Stupid: PIMCO's Bill Gross

PIMCO’s Bill Gross on CNBC:


PIMCO believes the money fueling bull market run in stocks seems to have come from cash in money markets and banks, not from the bond market so far


PIMCO is bullish on stocks, market can go up 5% to 6% from here


PIMCO believes that investors have a chance for 3% to 4% return on bonds


PIMCO is shortening it’s duration in bond portfolios


PIMCO believes that right now picking the right bond is just as important as picking the right stock


In PIMCO’s recent market missive, Gross said that they believe that the U.S. economy has become too credit-reliant and is requiring more and more government stimulus to produce ever-diminishing rates of growth, much like Japan has experienced over the past decade.  Using a supernova as a metaphor for the U.S. financial system, Gross said the universe is expanding so rapidly now that in the far future it will end in a "big freeze." Dependence on credit for growth will produce similar results, he said.  "Our current monetary system seems to require perpetual expansion to maintain its existence," Gross said. "The advancing entropy in the physical universe may in fact portend a similar decline of 'energy' and 'heat' within the credit markets."


Gross said in the 1980s it took $4 of new credit to generate $1 of real gross domestic product, while over the past decade it took $10 and since 2006, $20 to produce the same result.


U.S. government, corporate, household and personal debt is now $56 trillion, a monster that needs ever increasing amounts of fuel, Gross said, calling it a "supernova star that expands and expands, yet, in the process begins to consume itself."






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