PIMCO to Obama: Tough economy awaits next president
Written on July 1, 2008
The world’s biggest bond fund manager anticipates that Barack Obama will be the next U.S. president, and warns that he will face stern economic circumstances.
Bill Gross, chief investment officer of Pacific Investment Management Co, or PIMCO, manages the $130 billion PIMCO Total Return Fund.
In his monthly “Investment Outlook” letter for July, he says the next president will inherit a swelling budget deficit that’s likely to hit $1 trillion during his administration.
Gross, reputed for his quirky style and eclectic asides, often fashions his market outlook letters around literary or other popular culture analogies. They have ranged from Erich Maria Remarque’s World War I classic “All Quiet on the Western Front” to songs by the Beatles.
Gross’s July investment outlook letter was addressed to Obama, as if he had been elected.
“Dear President Obama,” the letter began creditreports. “You have inherited a mess. Your predecessor, fixated on emulating a former Republican icon from a far different economic era, chose to emphasize tax cuts for the rich and excessive consumption for all Americans,” Gross wrote. “He promoted deregulation and free markets when, in fact, the markets and their institutions needed tough love.”
The next president has little choice but to step up fiscal stimulus to revive the economy, Gross said.
“You’ve inherited an asset-based economy whose well has been pumped nearly dry with lower and lower interest rates and lender of last resort liquidity provisions,” he wrote. “Your administration will produce this nation’s first trillion dollar deficit.”
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