I really like this guy ( Bill Gross) who I never paid much attention to him until I went into more conservative mode on portfolio. He manages largest bond fund in the world(Pimlico total Return).
Quite a thought provoking article from him on recent downgrade. A few highlights of article--but need to read it all.
http://www.pimco.com/EN/insights/pages/kings-of-the-wild-frontier.aspx
Kings of the Wild Frontier
Article Introduction
---The press and most professional investors are accustomed to measuring ?paper? debt as opposed to walking/living liabilities in the form of people. I call these liabilities ?debt men walking? because as long as 330 million living Americans require promised entitlements ? the $66 trillion that wear shoes are as much of a liability as the $10 trillion on paper.
--By using these four life rafts available to U.S. and other AAA sovereign borrowers, one can almost imagine a half century from now, that they remain solvent ? although chastened perhaps with a lower credit rating. Based on historical example at Moody?s and Standard & Poors, it just might take 50 years for them to downgrade U.S. credit, but be that as it may, you and PIMCO as savers and savings intermediaries can take precautionary or even retaliatory measures to preserve purchasing power. Favor countries with cleaner ?dirty shirts? and higher real interest rates: Canada, Mexico, Brazil and Germany come to mind. Shade equity and fixed income investments away from dollar based indexes towards those of developing nations with stronger growth prospects. Purchase commodity based real assets before reserve surplus nations do.
Quite a thought provoking article from him on recent downgrade. A few highlights of article--but need to read it all.
http://www.pimco.com/EN/insights/pages/kings-of-the-wild-frontier.aspx
Kings of the Wild Frontier
Article Introduction
- Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit.
- In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at ?net present cost.?
- Aside from outright default, there are numerous ways a government can reduce its future liabilities. They include balancing the budget, unexpected inflation, currency depreciation and financial repression.
---The press and most professional investors are accustomed to measuring ?paper? debt as opposed to walking/living liabilities in the form of people. I call these liabilities ?debt men walking? because as long as 330 million living Americans require promised entitlements ? the $66 trillion that wear shoes are as much of a liability as the $10 trillion on paper.
--By using these four life rafts available to U.S. and other AAA sovereign borrowers, one can almost imagine a half century from now, that they remain solvent ? although chastened perhaps with a lower credit rating. Based on historical example at Moody?s and Standard & Poors, it just might take 50 years for them to downgrade U.S. credit, but be that as it may, you and PIMCO as savers and savings intermediaries can take precautionary or even retaliatory measures to preserve purchasing power. Favor countries with cleaner ?dirty shirts? and higher real interest rates: Canada, Mexico, Brazil and Germany come to mind. Shade equity and fixed income investments away from dollar based indexes towards those of developing nations with stronger growth prospects. Purchase commodity based real assets before reserve surplus nations do.
