Bond guru Bill Gross sees capitalism 'bridled and saddled'

Bond market guru Bill Gross' taunt to stock market bulls: Have fun while you can -- it won’t last.

Gross, who manages the Newport Beach-based Pimco Total Return fund, the world’s largest bond mutual fund, was out early Monday on Pimco's website with another dour commentary.

The stock market, however, wasn’t in the mood for dour: The Standard & Poor’s 500 stock index shot up 3.4% Monday -- which was more than the 2.8% that the Pimco Total Return fund has earned all year.

But those who’ve read Gross in the past won’t be shocked to see that he’s staying on point: He insists that, for the foreseeable future, the economic and political outlooks favor what he owns (mostly high-quality bonds), not riskier investments.

"Do not be deceived by the euphoric sightings of ‘green shoots’ and the claims for new bull markets in a multitude of asset classes," Gross wrote. "Stable and secure income is still the order of the day."

The gist of his message is that the global economy is destined for slow growth for years to come, as consumers slash debt and as governments worldwide rein in the "libertarian capitalism" that gets much of the blame for the financial crisis.

President Obama’s attack last week on Chrysler debtholders played right into Gross’ story line. He described Obama’s move as another example of "the public, with government as its proxy, [deciding] that private market, laissez-faire, free market capitalism was history and that a ‘private/public’ partnership yet to gestate and evolve would be the model for years to come."

Gross, an Obama supporter, said capitalism was being "bridled, saddled and taught to trot instead of gallop over the investment plains." . . .

That’s exactly what a bond man would prefer -- assuming it means that interest rates and inflation will stay low, along with economic growth.

Gross wrote:

"How does one invest during such a transition? Investors should recognize that this grassroots trend signals -- most importantly -- an increasing uncertainty of cash flows from financial assets. Not only will redistribution and reregulation lead to slower economic growth, but the financial flows from it will be haircutted and ‘burden shared’ by stakeholders.

"Slower growth can be a public good if it avoids the cataclysmic effects of double-digit unemployment, escalating foreclosures, and fear of financial insecurity. But the Obama cannon shot will have financial consequences. ... Shaking hands with the new government is still the prescribed strategy, although it should be done at a senior level of the balance sheet."

Translation: Tilt toward the securities the U.S. fully supports, which would include Treasuries and agency mortgage-backed bonds -- exactly what Pimco Total Return is loaded with.

-- Tom Petruno

Photo: Pimco's Bill Gross. Credit: Pacific Investment Management Co.

Comments

[martscan]

Gross' reputation is far overblown relative to his market perspicacity. His batting average ain't so hot. I do give him credit here for being out front in selling his book, but he's not above fading (him).

[Randell Young]

Bill Gross is James Taggart.

[luddhunter]

Gross is a parasite. He doesn't want to ride the capitalism "horse", he wants to slaughter and eat it, and replace it with the docile sheep hybrid of socialism/fascism. To blame capitalism for the crisis, with the Fed price fixing interest rates and the "too big to fail" cronies of big govt congressmen knowing bailouts would save them...is like blaming an arson-set forest fire on the flammability of wood. Ayn Rand came back from the dead to comment on O'mama's craven power grab:
youtube.com/watch?v=PvT_ajRL5yE