He released his monthly letter last week in which he took aim at the Fed's plan for quantitative easing. He likened the anticipation of the Fed's announcement on QE to "a turkey looking forward to a Thanksgiving Day celebration." Here is a nice summary of the letter from Fortune.com and an excerpt:
He sees the diners at this inflationary feast as "financial asset classes more adaptable to inflation such as stocks or commodities, or perhaps the average American on Main Street who might benefit from a hoped-for rise in job growth or simply a boost in nominal wages, however deceptive the illusion."
From my point of view, I understand why the Fed is embarking down this road, but I am extremely skeptical that expanding the balance sheet will be constructive in the mid-term or long-term, while the equity markets may appreciate it in the short-term. Over the past 28 years the Debt/GDP ratio has more than tripled, yet GDP growth has slowed. I don't think more debt is the answer.
I also came across this article in Reuters today, where Gross warns that QE will cause the dollar to drop by 20% over the next few years. This is obviously what the Fed is trying to do, in an attempt to revive the economy. A weaker dollar means U.S. exports are cheaper for foreign consumers. But will this cause a continuation of currency warfare? Other governments have printing presses at their disposal as well and are similarly eager to devalue their currencies in order to remain competitive in the global marketplace.
PIMCO representatives were on campus recently for recruiting and I attended their corporate presentation. They highlighted PIMCO's expansion into other asset classes, which is certainly timely given that, in his monthly letter, Mr. Gross called the end of the 30-year-long bull market in bonds. PIMCO and Gross have been some of the biggest beneficiaries from this long bull market in bonds. It will be interesting to see if they can be nearly as successful in asset classes outside of Fixed Income.
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