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
Caterpillar 14:1
Boeing 4:1
Dupont 3:1
United Technologies 3:1
JPM 50:1
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.

18 comments:

wilwon32 said...

Your point is well taken, and, by the way, the RSA animation example you posted two days ago has the potential to provide a mode of communication which could get your points across to those who require visual aids. As most are aware, in order to facilitate effective communication to the masses whether they be the traders on Wall Street, the politicians, the neo-liberal economists who are so frequently discussed on MMT-advocating blog sites, or the average person who simply likes to watch videos to learn something (economics and finance certainly qualify for the vast majority of Americans), audio or written communication is frequently inadequate.

The RSA program presently benefits form some government funding to support Animation Video production. On the other hand, the MMT-crowd simply seems to have a problem; i.e., their message is not getting across as quickly as it might. I have left comments in this connection at various sites to try to encourage the MMT-crowd (if I were a bit younger/ physically up to the task and more talented/experienced in economics and software mastery, I would consider doing this sort of task); currently, it may be best to simply try to make the point that development of more effective communication techniques will be required to enlighten intended targets. To my knowledge, your animation example is the first effort at recognition of the potential usefulness of this technique. By the way, several comments were quite extensive and insightful, though I am not sure that the MMT-crowd wants to get bogged down in discussion of Marxism or competing economic/social theories other than to try to demonstrate how a general understanding by the public at large might eventually give the propaganda ideas of the neo-liberal and or precious metal wealth gatherer proponents (you know who they are) some real competition in the idea market place. The blatant actions/ attempts by TPTB to control thought in America and the world seem to have augmented an apparent acceptance of an essentially religious/spiritual set of beliefs in such concepts of an 'invisible hand/force' which will/has the ability to facilitate correction of mistakes/ misjudgments by those in the major decision making positions of the TBTF institutions. The consequences of that sort of idea have obviously been mistaken. An attempt to try to rectify any porton of the negative consequences of the mess we find ourselves in is likely to require a great deal of invention/ effort on the part of the MMT-crowd and/or others.

Red Rock said...

When Gross is actually willing to buy a corporate bond that yields less than an identical duration sovereign bond I'll take him seriously. Until he does that he's just blowing smoke. Put your money where your mouth is Bill.....

Eric said...

14.5 trillion isn't the government's income. That would be more akin to something like revenue if the US were a company. 2.3 trillion would be closer to right (I think that's about what tax revenues are right now). The US can't nationalize the who 14.5 any more than CAT can go and spend all of their revenues (unless the gov't wants it's people to starve or if CAT can get away without paying it's employees) I agree with you that people overblow the U.S.'s current abilities to service it's debt. But these deficits are never ending, and it will likely not always be the case that we can easily service our debt.

Mike Norman said...

It's called the "national debt" and that's the GDP (national income). You want to talk about assets as well? Probably close to $150 trillion. However you slice it, Eric, the comparisons are ridiculous and that's what I was doing, putting it in perspective. Gross is way off on this.

Crake said...

I am still waiting for the imaginary late model cars from our "artificial" economy to vanish and see people fall out on the road. Or wake up to hear reports of all the weight Americans have lost because we have not really eaten anything in two years because all the food we have eaten for the last two years was fake because we are in an "artificial" economy according to all these pundits.

Mike Norman said...

Yes, Crake, LOL!!!

Joe said...

Cullen Roche from pragcap summed it up best:
The good thing about Bill Gross is that he gives us all hope. With a little timing, above average intelligence and a little luck we can all become billionaires!!!!

Matt Franko said...

I think Gross is a prime human example of the mathematical concept of Survivorship Bias.

Mike I saw this also this morning and wanted to throw up.

This is revealing: "Gross says that if the U.S. were a company"... Hey Billy Boy, it's not you moron!

Adam said...

A few months ago it seemed like Bill Gross got it when he was speaking of the need for deficit spending. Now he is going all unscientific.

Crake said...

Do you know Brian Wesbury, Chief Economist of First Trust?

He was on a Houston radio station this morning. He blamed the high unemployment squarely on government spending adding that government spending takes from the economy so the dramatic increase in government spending has taken a large toll on our economy. He added that it is pretty simple: if the government spends 25% of GDP that means we are only left with 75%. Those were almost his exact words.

Anti said...

I do not have a degree in economics. I've never worked in the financial sector. So, why has it been so obvious to me now stupid people like Gross are?

I've been using the household debt comparison. That is, most families have debt/income ratios far higher than that of the government. Most families have mortgages at 3x or more of income, car loans, credit cards, student loans, etc. Yet, even at times like these, the vast majority of families are quite solvent. This has been the case ever since credit lines like these were available to Americans.

And families can't raise taxes or issue currency.

brencast said...

so the Chinese buy trillions of Treauries out of kindness.....hmmm

doesn't Auerbach work for Pimco in some capacity? Clearly he hasn't penetrated Gross's skull.

Matt Franko said...

Crake,

Wesbury has been on this tack for some time.

Here is a link to a post from a while back related to Wesbury and his "crowding out" meme.

Anti, You have more Mathematical Maturity than Gross.

brencast, Yes that melon on Gross seems like a tough nut to crack!

googleheim said...

I have watched PIMCO on the various cable networks. They are hosted for a couple of minutes with their various front men, then they get a commercial egging for new accounts.

What they do is come on and try to shock, rock and shoal the folks in dingies who get stuck on sand bars at low tide. They make all these statements of gunk, and then try to pull in the net.

The British and Japanese own 3 time as many treasuries than China.

now we need to trick the Russians into the same game.

Bob said...

Gross has a monopoly and talks his book. He has proportedly moved to cash, I think to buy up equities with his new fund after the pullback. Follow the money. Too bad we can't break Pimcos inside track to the Fed and the primary dealers. Oh well I will follow the money.

threeggg said...

Mr. Norman
Want to thank you for putting Gasparino in his place.
Your knowledge makes him look like a 1st grader. He thinks he knows everything but you show min that he doesnt.

Thanks again !!!

threeggg said...

Stay on Gasparino's lack of knowledge. (on all subjects)
He blushes like a little girl when you call him out..............!

I yell at the TV all the time when he is on (because he is such a fool) and through your knowledge I get the satisfaction of seeing him squirm !!!!!!!!!!!!!!

I Love you !!
In a manly way of course !!!

personal financial management course said...

Hey Very informative post. Thanks a lot for sharing such a nice post. Keep Sharing:)