	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 18-Sep-05
Pimco's Bill Gross recommends selling all, buying only short-term Treasuries

Web Log - September, 2005

Pimco's Bill Gross recommends selling all, buying only short-term Treasuries

Meanwhile, Morgan Stanley's Stephen Roach says, "The world as we know it must come to an end."

In his September, 2005, investment newsletter, PIMCO's Bill Gross, head of the world's largest bond fund, advises investors to sell everything else off and move into short-term Treasury bonds.

Gross refers to Alan Greenspan's swan song speech, wherein he said: "Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

He indicates that the housing bubble will soon at level off, and possible burst completely. Either way, investors will become more cautious, and they will sell off any assets that carry the "low risk premiums" that Greenspan mentioned. "Those assets include real estate, equities, high yield, corporate, and some areas of emerging market debt," according to Gross. He includes long-term Treasury notes in this list.

This is the prescription for preparing for a major market correction, and Gross evidently believes that it's coming, and coming soon.

Stephen Roach, chief economist of Morgan Stanley, appearently feels the same. In "The Shoestring Economy," his September 9 commentary, he says that "the world's leading economic power is trying to do [too] much with [too] little."

America has too little money because of the historically low savings rate, and the historically enormous level of public debt. "But now Washington is upping the ante as it opens the fiscal spigot to cope with post-Katrina reconstruction at the same time it is funding the ongoing war in Iraq," he says. "Could this be a tipping point for America’s shoestring economy?"

If you've been reading this Web Log this week, then you know that I'm practically in a state of shock over what's happened. Led by President Bush, Washington is committing to spend $200 billion on aid for Katrina victims. That's $1-2 million for each family of five.

All three of us are saying the same thing: That the economy is close to a meltdown. If there's any disagreement among the three of us, it's about how bad the meltdown will be, with me being the gloomiest of the three. As both I and other analysts have computed, the true value of the market today is around Dow 4500, which means that the market is overvalued by more than 100%.

What about dates? In 2002, when I first realized that Generational Dynamics predicts that we're entering a 1930s style Great Depression, I predicted a stock market crash by the 2006-2007 time frame. Today, all three of us are saying something like 12-24 months.

But I think that what we're all saying is that things are getting sooooooooo bad, even before Katrina. And now and $200 billion for Katrina is an almost unbelievable impetus.

The 76th anniversary of the crash of 1929 is coming soon, on October 24. It's time to be very, very cautious. (18-Sep-05) Permanent Link
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Generational Dynamics Web Log for 18-Sep-05 Pimco's Bill Gross recommends selling all, buying only short-term Treasuries

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Generational Dynamics Web Log for 18-Sep-05
Pimco's Bill Gross recommends selling all, buying only short-term Treasuries