Saturday, January 10, 2009

Gross: "We have met Mr. Ponzi, and he is us"

Bernie Madoff is just one of many Ponzi schemes, says Bill Gross:

"Aaa subprimes structured like a house of straw; Aaa monoline insurers built like a house of sticks; Aaa credits like AIG, FNMA, and FHLMC where only a huff and a puff [and] dependent upon asset price appreciation for their survival. Ponzi finance. ... Municipalities with begging bowls now extended for over a trillion of Federal taxpayer dollars, based their budgets and their own handouts on the perpetual rise in home prices, the inevitable upward slope of sales taxes, and the never-ending increase in employment and personal income taxes. To add injury to insult, they conveniently “balanced” their books with a host of accounting tricks ... [A]uto companies that siphoned sales dollars to make labor peace instead of research and design expenditures; hedge funds that preposterously billed investors for 2% and 20% of nothing; a President and politicians who thought they could fight a phony war for free and distract the nation’s attention from $40 trillion of future social security and health care liabilities. Ponzi, Ponzi, Ponzi."

How to invest?

Gross: "[S]hake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first. ... [T]o think California or NYC would be allowed to fail is, well – unthinkable. Municipal bonds then, selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential." TIPs "can benefit if and when the government’s efforts to reflate begin to take hold."

Obama team posts economic analysis of stimulus

Obama's economic team posted its analysis of the stimulus package being discussed, of around $775 billion. They say it will create 3.7 million jobs and boost GDP by 3.7% by the 4Q of 2010.