Bill Gross Sends Out Big Apology To Investors, And Then Declares That The Economy Is Doomed

Bill Gross Sends Out Big Apology To Investors, And Then Declares That The Economy Is Doomed

Funny, just yesterday afternoon we pointed out the irony of nobody caring about the fact that Bill Gross had loaded up the boat on the long end of the yield curve, a gamble that obviously meant one thing: He sees no growth or inflation ahead -- essentially an economy that's doomed.

Dealbreaker (via ZeroHedge) put up a special letter from Gross to his investors titled, simply Mea Culpa.

For those not caught up on Gross' year, he's ranked 536 out of 584 bond funds this year, mostly due to the fact he predicted (quite loudly in the press) that the end of QE2 this summer would see yields soar. But they didn't. Instead, the economy started slowing down right then, and the flight to Treasuries was ON, creaming his bet.

The simple fact is that the portfolio at midyear was positioned for what we call a “New Normal” developed world economy – 2% real growth and 2% inﬂation. When growth estimates quickly changed it was obvious that I had misjudged the ﬂy ball: E-CF or for non- baseball aﬁcionados – error centerﬁeld.

But now, after he's made his monstrous bet on the long end he no longer believes in the new normal.

So where do we go from here? Our internal growth forecast for developed economies is now 0% over the coming several quarters and the portfolio more accurately reﬂects this posture. Yet even so, can the golden glove regain its magic?

"Oddly enough, NPR sounded positively chipper this week when discussing the economy."

So when will optimistic financial investors wake-up to reality?

A Rising Stock Market Won't Stop the "Economic Rot" Beneath

Stock-Markets / Stock Markets 2011
Oct 14, 2011 - 01:17 PM
By: EWI

Suppose you see a lovely house -- one with great curb appeal. It has new paint and manicured shrubbery out front.

But also suppose that you look more closely. You press your thumb on the window sill and the wood frame crumbles in. Come to find out, the wood is rotten in too many places to count. The deck joists and supports are fractured. Even the terrain underneath the deck looks unstable. And the closer you look the worse the problems are.

It's obvious that very few people would buy that house. Yet you can be pretty sure that the home's owner will have "good things" to say about the place.

Likewise, today's stock market has plenty of cheerleaders -- even as the rot spreads throughout the economy. Real estate and homebuilding sector alike continue to decline in the wake of the mortgage meltdown. Municipalities continue to have growing budget problems. We're not talking about a "small town" bankruptcy, either. An Oct. 12 Reuters headline reads:

"Harrisburg, Pa., Files for Bankruptcy Protection." The story goes on to say that "The Pennsylvania state capital faces a $300 million debt crises..."

This Oct. 12 headline is from Bloomberg: "California Kids Face Days Without School as Revenue Gap Imperils Education." It continues: "Public schools in California...are bracing for a $1.7 billion cut that may wipe out high-school sports and student busing, and trim the academic calendar by seven days next year."

The economic problems run much deeper and wider than these stories can reflect -- yet they are indeed today's stories. The capital of one of our biggest states is filing for bankruptcy? That should serve as an alarm. Then again, the market is rallying just weeks after the downgrade of U.S. Treasury debt.

So when will optimistic financial investors wake-up to reality?

"At some point in the trend toward negative social mood, fear, and then panic, will bring to light the risks that people today are ignoring. Global credit deterioration is objectively real; but disaster will strike only when it becomes subjectively realized." Elliott Wave Theorist, September 2011

Collective psychology could "catch up" to the objective economic reality sooner than later.

Will you be prepared when the economic reality hits?

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