Bill Gross September 09 Investment Outlook Notes

Here are notes from Bill Gross's Sep 09 Investment Outlook article:

• When it comes to whacking golf ball, the possibilities of explanation are endless: For relaxation, for socialization, to get close to mother nature, etc.
• The "new" vs. "old" normal dichotomy was perhaps best contrasted by Barton Biggs when he said he was a "child of the bull market."
• Biggs' point was for as long as he's been in the market, it has paid to buy the dips because markets, economies, profits and assets always rebounded and went to higher level.
• Economies grow, profits grow, just like children do.
• However, the surprise is that there's been a significant break in that growth pattern because of delevering, deglobalization, and reregulation (DDR).
• DDR in combination means that it's time to recognize that things have changed and that they will continue to change for the next decade or even two.
• We are heading towards the new normal which is a period of time in which economies grow very slowly as opposed to growing like weeds, the way children do; in which profits are relatively static; in which government plays a significant role in terms of deficits and reregulation and control of the economy; in which consumers stops shopping until he drops and begins.
• American-style capitalism and the making of paper instead of things. America would consume, then print paper assets and debt in order to pay for it. Developing countries would make things and accept America's securities in return. This game is over and unless developing countries step up and generate a consumer ethic of their own, the world will grow at a slower pace.
• The invisible hand of free enterprise is being replaced by the visible fist of government. The once-successful "shadow banking system" is being reregulated and delevered.
• Global economic leadership. China has spent three times the amount of money (relative to GDP) to revive its economy and managed to grow at a "near normal" 8% pace vs. U.S. "big R" recessionary numbers.
• Old normal housing models encouraged home ownership, eventually peaking at 69% (sometime in 2004). Subsidized and tax-deductible mortgage interest rates promoted a long-term housing boom and now a significant housing bust.
• Housing alone can't lead U.S. out of this big R recession no matter what the recent Case-Shiller home price numbers may suggest. Home ownership may sink perhaps to a new normal level of 65%, as opposed to 69% of American households.
• The shadow banking system has fueled an American era of consumerism because debt was available, interest rates were low and the living became easy.
• Saving rates plunged from 10% to -1%. Now things have perhaps changed and saving rates are headed up, consumer spending growth rates moving down. A new normal is taking place.
• Increased health care may be GDP positive but it's only a plus from a "broken window" point of view. It's far better to have a younger, healthier society than to spend trillions fixing up an aging, increasingly overweight and diabetic one.
• Same thing goes for energy. Better and more profitable to pump oil than to spend trillions on a new "green" society.
• The investment implications of this new normal evolution cannot easily be modeled econometrically, quantitatively, or statistically. The successful investor during this transition will be one with common sense and importantly the powers of intuition, observation, and the willingness to accept uncertain outcomes.
• PIMCO observes that the highest probabilities favor the following strategic conclusions: 1) Global policy rates will remain low for extended periods of time; 2) The extent and duration of quantitative easing and fiscal stimulation efforts are keys to future investment returns across a multitude of asset categories: 3) Investors should continue to anticipate and shake hands with government policies, utilizing leverage and guarantees to their benefit; 4) Asia and Asian-connected economies (Brazil, Australia) will dominate future global growth; 5) The dollar is vulnerable on a long-term basis.
• Investors need to play conservatively and avoid critical mistakes. An "even par" scorecard may be enough to hoist the trophy in a New Normal world.