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the underpinnings of free market economics is asset appreciation,
influenced by leverage, securitization, and the belief that wealth
creation was a function of asset appreciation as opposed to the
production of goods and services
basically gross is saying that the chicago school of economics(and
other like minded cretins of that mental stature), have gotten it
completely, dead, all wrong:)
and all we have left is a mountain of debt, asian countries
hopelessly locked into a unhealthy, parasitical relationship that does
not allow their own internal markets to bloom, yet enriches a few
world wide, to the detriment of billions. which has collapsed the
demand of the western worker.
what a waste the last 30 years has been. historians will look at the
mental giants of ayn rand, frederick hayek, milton friedman, thacher,
reagan, the bushs, clinton, blair, brown, summers, laffer, sprinkle,
and other cranks of that stature, as a period of embracing
irrationality(insanity).
the great new deal economist galibraith, got it right "every 20-30
years, a group of cranks come along, that thinks it will be different
this time".
http://finance.yahoo.com/tech-ticker/article/362503/Bill-Gross-Assets-Are-15-Trillion-Overvalued-and-Fed-Will-Keep-Rates-at-0-Forever-to-Keep-the-Fantasy-Alive;_ylt=AnOKgaN08QgE0kb6oA1yjHK7YWsA;_ylu=X3oDMTE1dmdsaTUyBHBvcwM3BHNlYwN0ZWNoVGlja2VyBHNsawNiaWxsZ3Jvc3Nhc3M-?tickers=dia,spy,xlf
Bill Gross: Assets Are $15 Trillion Overvalued and Fed Will Keep Rates
at 0% Forever to Keep the Fantasy Alive
Posted Oct 28, 2009 12:30pm EDT by Henry Blodget in Investing,
Newsmakers, Recession, Banking
Related: DIA, SPY, XLF
From The Business Insider, Oct. 28, 2009:
PIMCO's Bill Gross with a great monthly letter. Here are the key
points:
• Over the past 30 years, paper asset prices rose 2X as much as they
should have based on economic fundamentals
• This was the result of leverage
• The asset price rise in turn pumped up the economy's fundamentals
(Soros's reflexivity)
• The government wants to restore the "old normal" (2007) not the
"new normal" (slower growth as asset prices return to trend)
• Therefore... The Fed will keep rates at 0% for at least 18 months
into sustained 4% growth
• Next year, when the inventory restocking effect wears off, 4% will
be tough
Bill Gross:
[I]n a New Normal economy (1) almost all assets appear to be
overvalued on a long-term basis, and, therefore, (2) policymakers need
to maintain artificially low interest rates and supportive easing
measures in order to keep economies on the “right side of the grass.”
Let me start out by summarizing a long-standing PIMCO thesis: The U.S.
and most other G-7 economies have been significantly and artificially
influenced by asset price appreciation for decades. Stock and home
prices went up – then consumers liquefied and spent the capital gains
either by borrowing against them or selling outright. Growth, in other
words, was influenced on the upside by leverage, securitization, and
the belief that wealth creation was a function of asset appreciation
as opposed to the production of goods and services...
My point: Asset prices are embedded not only in our psyche, but the
actual growth rate of our economy. If they don’t go up – economies
don’t do well, and when they go down, the economy can be horrid.
To some this might seem like a chicken and egg conundrum because they
naturally move together... if long term profits match nominal GDP
growth then theoretically stock prices should too.
Not so. What has happened is that our “paper asset” economy has driven
not only stock prices, but all asset prices higher than the economic
growth required to justify them...
[L]et me introduce Chart 2 a PIMCO long-term (half-century) chart
comparing the annual percentage growth rate of a much broader category
of assets than stocks alone relative to nominal GDP. Let’s not just
make this a stock market roast, let’s extend it to bonds, commercial
real estate, and anything that has a price tag on it to see if those
price stickers are justified by historical growth in the economy. |
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