Bill Gross, Chief Investment Officer of PIMCO states that inflation is not under control. Does that mean it’s out of control?
At anyrate his points are as follows:
He said statistical practices in calculating price growth had favored lower U.S. inflation over the last 25 years and called for change.
“Today’s world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable,” Gross said.
and he wants us to change US leadership! I’m all for that, but I don’t see anyone on the horizon with the cajone’s to take on how inflation is calculated, much less energy, social security, medicare, savings rate, etc.
“Join me in lobbying for change in U.S. leadership, the attitude of its citizenry, and (to the point of this Outlook) the market’s assumption of low relative U.S. inflation in comparison to our global competitors.”
and his investment advice…
Gross said that developing economies such as Brazil, Russia, India and China were obvious choices for investment dollars.
U.S. Treasury bonds were not favored investments due to negative real yields, Gross said.
He added that Treasury Inflation Protected Securities (TIPS) were difficult to value because of the “artificially low inflation number” arising from statistical quirks.
You can read Bill’s actual commentary here, which on a quick read is much more informative that the above referenced article. You will find some good one liners (well not quite) such as..
We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value.
We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future.
and here are his investment suggestions without the editing from CNBC…
What are the investment ramifications? With global headline inflation now at 7% there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide. In this role we would suggest: 1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.
