New Strategies for a New Era

Posted by Barron's Roundtable

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Excerpts from the Barron’s “Roundtable”

Bill Gross, more than anyone, appears to possess a big-picture view with emphasis on unemployment – Richard Russell

Bill Gross – Bill Gross manages the world’s largest bond fund

Bill Gross: The economic problem is one of jobs. Many employment models are semi or permanently broken. This includes state or local hiring, and jobs in construction, auto manufacturing, retailing and Wall Street finance. These were all significant areas of employment in the past.

Gross again — The jobs situation leads to what drives the economic consumption. Without jobs, consumers can’t spend. Remarkably, consumption has stayed above 70% of GDP amid the recession, but consumers can’t continue to spend unless the government continues to write the checks.

It is not only the US economy that has been levered. It is the global economy. When you put the pieces together — the inability to provide jobs in the private sector, and the unsustainable nature of government stimulus — it makes you wonder how long GDP can continue to grow at the 4% rate estimated for the fourth quarter of 2009.

Fred Hickey: I’m worried that the protectionist drums are getting louder here. The US has imposed duties on Chinese steel and tires, and more than 50 anti-dumping actions are in process. China spent $600 billion to build its manufacturing sector. It needs to continue to produce, and it needs an export market. So it is not so willing to give up its competitive advantage.

In the meantime, the US continues to hemorrhage jobs, and increased taxes and regulatory burdens only add to the competitive burdens of US manufacturers. If we continue to lose jobs, we won’t be able to consume, and the rebound we are having right now won’t be maintained. As a result, the Fed will continue to print money. This is a midterm-election years, and there will be a lot of pressure on the Fed to continue to extend the quantitative easing it has engaged in during the past year.

Felix Zulauf: Although printing money doesn’t create a single job.

Hickey: No, but the Fed doesn’t know that.

Mark Faber: He (Bernanke) has been a catastrophe for the US. He wasn’t responsible for the Nasdaq bubble, but he was responsible for the housing and credit bubbles that followed. Anyone who owns natural resources around the world should send him a big thank-you note, however, as a result of the credit bubble, the US over-consumed, shifting wealth, capital spending and employment to emerging markets. And as those markets kept growing, they drove commodity prices higher.

Gross: When you blame central bankers, you don’t go back far enough. The problem really began with globalization — the fall of the Iron Curtain, the incorporation of Asia into the global economy, the development of cheap labor markets since the late 1980s.

In the next five or ten years, there are three problems. One is Social Security, and that is minimal. Health care spending will be more of a problem, and interest on the federal debt compounding at higher levels will be the biggest problem. But it won’t be as much as 30% of GDP.

Gross again: When you include government and private net savings after depreciation, for the first time since the Great Depression, we haven’t even started to come to grips with the conservatism required.

Zulauf: I own a lot of physical gold, but the gold ETF, GLD, is a good instrument for American investors. Gold stocks are a different sort of investment because corporation can go bankrupt. They can be manipulated. They can have bad luck or soaring costs or strikes. At some point, gold stocks will fly, but the safest bet in the gold market is bullion.

… the the whole article HERE (trial subscription required)

….read Bill Gross’s I2010 nvestment Outlook HERE.