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He Manages a Trillion Dollars. What's His Biggest Worry?

By Dr. Steve Sjuggerud
Tuesday, October 9, 2012

Bill Gross runs the world's largest mutual fund. And he's worried...
 
Why have investors entrusted Bill Gross with so much money? And what's he worried about? I will answer those questions today...
 
Investors trust Bill because he has – for four decades – delivered the Holy Grail... He has delivered higher returns with less risk (less volatility) than his peers.  
 
Mostly based on Bill's reputation as a money manager, the investment company he founded – PIMCO – now has over $1 trillion in assets under management.
 
Multibillionaire Warren Buffett may be more of a household name as the greatest investor alive today. But Bill Gross (also a multibillionaire) deserves to be mentioned in the same breath.
 
And as I said, Bill is worried now...
 
In his October Investment Outlook newsletter, he explains why.
 
"Armageddon is not around the corner. I don't believe in the imminent demise of the U.S. economy and its financial markets," he writes. "But I'm afraid for them." 
 
It's not the current state of things that worries Bill. He points out that today, the U.S. still has "a federal debt/GDP less than 100%, Aaa/AA+ credit ratings, and the benefit of being the world's reserve currency." 
 
It's the dire path we're on that concerns him: 
 
IF we continue to close our eyes to existing 8% of GDP deficits, which when including Social Security, Medicaid, and Medicare liabilities compose an average estimated 11% annual "fiscal gap," then we will begin to resemble Greece before the turn of the next decade.
 
Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline.
 
Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the "Ring of Fire."
 
The "Ring of Fire," as Bill calls it, is the six developed countries with huge deficits and fiscal gaps as of 2011: Japan, the U.S., the U.K., Greece, Spain, and France.
 
Bill explains his opinion more fully in his latest Investment Outlook letter, which you can read for free here.
 
In his previous Investment Outlook letter, Bill suggested how individual investors should position themselves today, and why: 
 
If I were an individual investor, I would do this: Balance your asset mix according to your age. Own more stocks if you are young, but more bonds if you are in your 60s, like myself... And be careful.
 
The age of credit expansion which led to double-digit portfolio returns is over. The age of inflation is upon us, which typically provides a headwind, not a tailwind, to securities prices – both stocks and bonds.
 
I like Bill Gross because he is "in the trenches" every day and he speaks his mind. Most people in the investment business with big money on the line are afraid to speak up, afraid of some sort of backlash from the government (or from their own attorneys). Bill speaks his mind regardless.
 
He could be wrong about all of this, of course...
 
The "albatross" could be circling him now. It always seems to show up for investment veterans, as I explained in this DailyWealth. But Bill Gross has a 40-year track record of drawing intelligent conclusions ahead of the crowd.
 
I think he is right. One likely scenario is a few more years of the Bernanke Asset Bubble, followed by what Bill Gross describes above.
 
Here at DailyWealth, that is our working "script." We suggest you invest accordingly...
 
Good investing, 
 
Steve




Further Reading:

Learn more about the Bernanke Asset Bubble – and how Steve sees it playing out – here...
 
How you handle market moves will determine if you will make a fortune in the rest of the Bernanke Asset Bubble... or if you will lose money...
 
Bernanke has laid his cards out. We know his intentions. You have to position yourself accordingly...

Market Notes


THE BULL MARKET IN HEALTH CARE CONTINUES

For medical device makers, the big trend is up. That's what today's chart shows.
 
Longtime DailyWealth readers know health care stocks have kicked into a major uptrend. For several years now, our colleague Dr. David Eifrig has encouraged readers to own shares of Big Pharma stocks. He notes how aging Baby Boomers will keep demand for drugs high… providing a huge market for major names like Pfizer, Merck, and Eli Lilly. This tailwind has carried many Big Pharma stocks to new all-time highs in 2012.
 
Today's chart shows medical device and equipment makers have also joined the bull market. Medtronic (NYSE: MDT) makes everything from pacemakers and heart valves to bone grafts and insulin pumps. Baxter (NYSE: BAX) makes systems for treating patients with a range of conditions, including hemophilia and kidney disease.
 
As you can see in the chart, after surging more than 20% over the past four months, Medtronic (black line) and Baxter (blue line) just broke out to fresh 52-week highs. The long-term uptrend in health care is still intact.
 
– Larsen Kusick
 
 Medical Device Makers Are Riding the Health Care Uptrend

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In The Daily Crux



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