Photo: Ed Yourdon via Flickr
To Bill Gross of PIMCO, three marriages in the global economy are turning sour.In his most recent investor note, Gross decries European countries that are “sleeping around,” an American dream that has lost its romance, and a relationship between Asian producers and Western consumers that is no longer as perfect as it seemed.
His advice? Equities are cheap but could see more downside risk if growth falters, and investors should look to currencies with strong ties to Asia.
Here’s what else he had to say:
– “This was an economic version of an open marriage where one party gets to have all the fun and the other worked nine-to-five and came home too exhausted for whoopee. Well sometime last year, global lenders said enough is enough and soon the whole cheating European Union (EU) was at each other’s throats, hiring lawyers and threatening to break up. Calmer heads prevailed when the ECB decided to make nice and use its checkbook.” He adds that Germany and France are renewing their vows.
On the United States
– The American dream could be in jeopardy — and the American people are beginning to realise that. “Instead of boundless opportunity, the nursery rhyme describing Jack Sprat – who could eat no fat – and his wife – who could eat no lean – appears to be the starker of the two realities. There are the poor and there are the very rich, with the shrinking middle class resembling Mr. Sprat rather than his wife.”
On Western consumers and Asian producers
– Asia and the West are becoming more and more suspicious of each other, with the latter acknowledging that the power dynamic has changed. “China questions our credit quality and the yields on their trillion dollars of Treasury bonds. The U.S. questions their exchange rate and claims currency manipulation behind closed doors. This couple claims to still be dating, but “hooking up” may be more like it. Even then, no one stays the night, claiming they left their toothbrush at home.”