Tuesday, March 8, 2011
Bill Gross can say what he wants because he's Bill Gross
I was listening to Bill Gross today on Yahoo Tech Ticker and as usual he was making some really ignorant comments.
For those who don’t know who Bill Gross is, he is Founder and co-CEO of Pimco, the world’s largest bond fund, which currently manages about $250 bln in fixed income investments.
Gross must be a great trader or great marketer or something because his economic knowledge leaves a lot to be desired. Yet because of his “money status,” the media fawns all over this guy just like they do with lots of other big money players who don’t have a clue about the real world.
Making money as a trader and having a real understanding of the fundamental forces that drive markets and economic systems are two different things completely. In my years as a floor trader I knew plenty of guys that made tons of money, but who didn’t know the difference between GDP or CPR and they didn’t care, either.
That’s fine. The problem comes in when guys like Gross start lecturing on economic matters that they really don’t have a clue about. I mean, at times it’s literally painful to listen this guy, but I do because I guess deep down I have serious masochistic tendencies.
In today’s Tech Ticker interview Gross starts off by agreeing with host Aaron Task’s concerns about America’s financial “stability.” Gross says that if the U.S. were a company nobody would lend money to it.
So right out of the box we get this totally deceitful and misleading comment. The claim is beyond ridiculous. Any seventh grader could Google some big American company—say, any one of the 30 companies that comprise the Dow Jones—and see that not a single one can even approach the favorable debt to income ratio of the United States of America. And they all are able to borrow money with ease.
Below are several examples of companies in the Dow (which are probably among the biggest, most well capitalized companies on earth) and you see that their debt to income ratios are far greater than the debt-to-income of the U.S.
IBM debt to income 2:1
United Technologies 3:1
BAC negative income, negative return on equity, negative return on assets!
Now look at the United States, which has $14.5 trillion of income per year and $14.3 trillion of debt. We’ll call it a one-to-one ratio. In reality, however, it’s far better because when you exclude what the government owes itself (and in all seriousness, this should be excluded), then the U.S. debt to income ratio is like 0.6:1. That’s zero-point-six to one! Yet there’s Bill Gross saying that if we were a company no one would lend to us. That’s absolutely crazy.
It doesn’t stop there. Next, Gross starts rehashing that tired analogy about how we're going to become the next Greece or Ireland if we're not careful. Again, no distinction is made between those Eurozone members—who are no longer currency issuers—and the United States, which spends in the currency that it has the monopoly power to issue. None!
Still, Gross was not done, his best line was yet to come. Gross explains to us why the United States has been so “lucky” for so long. Borrowing from the Tennessee Williams’ play, A Streetcar Named Desire, Gross says it has been due the “kindness of strangers.”
Honestly, I find Gross thoroughly nauseating with his goofy analogies, but I digress.
Gross “explains” that the U.S. is the beneficiary because exporting nations like China, Japan and others have accumulated dollars to lend back to us. I mean, think about that statement for a second and how absurd it is! The United States of America, a sovereign currency issuer with monopoly issuing power over its own money, must “get back” the money that it issues so that it can spend more?? That would be like Ford having to “get back” all the Mustangs it sold in order to have enough cars to meet additional demand.
At this point step back for a second and realize that this guy is considered to be one of America’s financial and economic geniuses. (God help us, seriously.) This comment is so stupid that it is beyond stupid. Yet sadly, this is what most of the mainstream financial and economic elite believe.
Gross follows with a long-winded diatribe on debt and how there is no way out except bad ways and finally, mercifully, the interview comes to an end.
I think what I found most upsetting about all this is that the information to refute Gross’s comments are public and readily available and accessible. As I said before, you could get a seventh grader to go look it up and he'd have the truth at his fingertips. Yet the “host” of this show lets Gross get away with it. Aaron Task just gives him a free pass because he’s Bill Gross. Now you see what’s wrong with financial journalism: Not even the slightest effort to challenge or rebut the obvious lies and distortion. Nothing!
It’s pretty obvious to me that Gross has absolute contempt for anyone who is not in his “elite” world. It’s as if he is saying, “Listen, dummy, I’m about to tell you something and because I am Bill Gross you’d better listen to me and listen good. That’s all you need to know. I’m Bill Gross.”
Then, like obedient slaves, that's what we do; at least that’s what most people do. We give Bill Gross a pass and allow him to tell us all of these unsubstantiated lies and misinformation simply because he’s a money manager who manages a lot of money. He is relieved of the burden and inconvenience of having to tell the truth—something that would be demanded of me or you or any “common person.” Bill Gross can get away with it because he’s Bill Gross and you’re not.