PIMCO's Bill Gross is more grim on the economy than I've seen in months.

Bill Gross runs the largest bond fund in the world. His partner Paul McCulley has been terribly critical of the impacts Bush and Co. have been having on the economy (in fact McCulley contributed a lot to Dem candidates last year). But more than anything, PIMCO guys are realists (granted, they're not always right - they were surprised all of 2004 by persistent low bond yields), and Gross' July 2005 Investment Outlook was quite a jolt to read. (note for TV viewers - Gross is slated to debate Bush lackey John Snow on CNBC this afternoon about economic prospects).

Some text from Gross:

http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+July+2005.htm

"Let me summarize my main points:

1) The current rather mild U.S. recovery has been driven by asset appreciation/consumption and not employment or capex growth.

2) Future growth is dependent on additional asset appreciation in real estate and stocks if Asia continues to absorb much of our investment and many of our jobs.

3) Recent asset appreciation has been set ablaze by several fiscal/monetary pumps displayed on page 2 with 5-year real rates being the central driver/gasoline can.

4) Tax cuts are a thing of the past and 5-year TIPS yields can theoretically decline only 60 basis points or so more.

. . .

6) The Fed may soon be out of fuel, despite hints of Bernanke-style helicopter money. Stocks and houses are already at low yields and high prices reflective of European economies nearing Japan-style liquidity traps.

If the asset pumps run dry and the kerosene cans empty, the inevitable path of the U.S. economy will reflect slow growth at best and recession as a realistic alternative. Inflation then would return to low 1% levels in the ensuing years and be pressing the deflationary crossover line. . . "

Whoops.

of being right and often.

Not to mention the reason I still have retirement savings. If he's worried....I'm terrified.

bonds whereas he was urging folks to go into TIPs a couple of years ago.

:shrug: Not much will be left to protect retirement funds if the "asset economy" implodes. I guess Money Market Funds will be at 0.

during their tenure in PIMCO's Total Return Fund - compare a TIPS fund vs. a broad bond market index fund for the past two years:

http://ichart.finance.yahoo.com/z?s=VIPSX&t=2y&q=l&l=on&z=m&c=SWLBX&a=v&p=s

And he is also stating quite explicitly that huge risks exist for an economy that's riding on asset bubbles and little else.