Bond Giant PIMCO’s Bill Gross tells the Fed: ‘Quantitative Easing’ is not working … it’s like a “leukemia patient on New Age Chemo”

Captain Rick: PIMCO’s Bill Gross says that ultra low interest rate policies and ongoing bond buying programs like ‘Quantitative Easing’ around the world aren’t working. Bill refers to it as a global financial system that is "beginning to resemble a leukemia patient with New Age chemotherapy, desperately attempting to cure an economy that requires structural as opposed monetary solutions." He is challenging the Federal Reserve and other central banks to become part of the solution rather than part of the problem.

Bill Gross, founder and co-chief investment officer of bond giant PIMCO. He is often called the world’s ‘bond king’.

I recognize Bill as one of the worlds most intelligent minds concerning everything related to bonds. Bonds help make our world grow. Bonds are the life blood of our cities, states and countries of our world. 

Bill writes a monthly ‘Investment Outlook’ news letter. His June report is entitled “Wounded Heart”, a nod to Bonnie Raitt’s 2002 tune. It is one of his finest. I will do my best to sum up his eloquent words of wisdom for the U.S. and other countries including Japan, England and Europe who are practicing ‘Quantitative Easing’ fiscal programs that are not working.

Excerpts from Bills “Wounded Heart” report:

“While the global central banks’ policies have stabilized economies, they haven’t succeeded in returning them to old normal growth rates”

"There comes a point when no matter how much blood is being pumped through the system as it is now, with zero-based policy rates and global quantitative easing programs, that the blood itself may become anemic, oxygen-starved, or even leukemic, with white blood cells destroying more productive red cell counterparts"

And to Fed chief Ben Bernanke’s claims that once economic growth has been restored to normal levels, financial markets can also return to normal interest rates and returns, Gross has a few stern words:
"Well it’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%"
"Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution."

To investors, Gross advises to reduce risk as the Fed continues to try to mend a wounded heart with blood that lacks the necessary oxygen. "Investors should look for a pacemaker to follow a less risky, lower returning, but more life sustaining path."

Read the entire Investment Outlook: “Wounded Heart”  by William H. Gross:  http://www.pimco.com/EN/Insights/Pages/Wounded-Heart.aspx

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Fed Financial Policy: https://atridim.wordpress.com/category/fed-financial-policy/

Investment 101: https://atridim.wordpress.com/category/investment-101/

Stock and Bond Market: https://atridim.wordpress.com/category/stock-bond-market/

Japan: Nikkei stock market plummets 7% Global stock market rally abruptly halted How do world markets compare for gains?

Captain Rick: A global rally in stocks came to an abrupt halt Thursday with a 7% plunge on Japan’s Nikkei index … the biggest one-day drop since the 2011 earthquake and nuclear disaster.
European markets fell by 2% with Germany’s DAX down 2.4% and France’s CAC 40 down 2.1%. This was preceded yesterday by U.S. markets dropping about 0.8%.

What caused this? Investors were rattled for three big reasons:

Japan: The Japanese rally had gone too far too fast. The Nikkei has surged by more than 70% over the last 12 months, far outpacing other markets.
‘Abenomics’, Japan’s version of ‘Quantitative Easing,’ has pumped massive amounts of money printed with red ink into the economy to create an image that the economy is doing good, when it is not.
The Bank of Japan’s policies can’t sustain the rally indefinitely, and Japanese companies will have to start reporting better earnings to bolster investment confidence.

U.S.: The Federal Reserve released minutes from its latest policy meeting revealing that some members of the monetary policy committee were looking to taper off the ‘Quantitative Easing’ bond-buying program as early as June. That is bad news for investors who have been energized by the Fed’s $85 billion of phony red money being pumped into the American economy each month to make it look like the economy is healthy, when it really is not.

China: Weak economic data. The latest numbers from China showed the country’s manufacturing sector contracted in May, contrary to expectations for expansion, reinforcing concerns about slowing growth in the world’s second biggest economy. This is a reality that is beginning to come to light because America, Europe and most of the world have economies that are actually in decline once we strip away the façade of programs like ‘Abenomics’ and ‘Quantitative Easing’.

World Stock Market gains in past 12 months
Japan: 69% (after todays huge loss)
Eurozone: 33%
England: 27%
Australia: 23%
Hong Kong: 21%
U.S.: 18%
Canada: 10%.
Mexico: 8%
Brazil: 3%
China: – 4%

Captain Ricks Analysis: Which markets are likely to go up … or down?
The stock markets in the countries at the bottom of the list (less than 15% gain) are on the strongest footing and are more likely to go up than down.
The stock markets in the countries at the top of the list (more than 40% gain) are significantly over invested with highly inflated values and face significant potential for decline.
The stock markets in the countries in the middle (15% – 40% gain) are in uncertain territory with over investment and inflated values, especially those in the upper half of this range. These markets are more likely to decline than rise, especially those in the upper half of this range.

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Associated ATRIDIM NEWS JOURNAL Report Categories:

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China: https://atridim.wordpress.com/category/china/

Stock & Bond Market: https://atridim.wordpress.com/category/stock-bond-market/

Fiscal Cliff 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

European Debt Crisis: https://atridim.wordpress.com/category/european-debt-crisis/

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Captain Rick’s FISCAL CLIFF course 101 . . . Lesson 3: History of the Fiscal Cliff

Captain Rick: The term “Fiscal Cliff” was coined by Ben Bernanke, 14th Chairman of the Federal Reserve, in his testimony before the House in February 2012. President Obama signed the Budget Control Act of 2011 in August of 2011. It provided that if the joint selected “Super Committee” did not produce bipartisan legislation, across-the-board spending cuts and tax increases would take place on January 2, 2013. That committee was not able to reach agreement and thus $600 billion in spending cuts and tax increases will take place in January 2013, unless congress and the president agree to a compromise. As of this date, a compromise seems unlikely. And that is good…because anything congress does to water down the “Fiscal Cliff” will haunt us all for years to come. I welcome you to follow this continuing story as I present why the “Fiscal Cliff” could have been better labeled as the “Fiscal Slope” to better economic times. In the mean time, I present the history of the “Fiscal Cliff”:

Fiscal Cliff Historic Timeline

March 23, 2010: President Obama signed into law the Patient Protection and Affordable Care Act. One of this law’s provisions is to impose new taxes on families making $250,000 per year or more starting in 2013.

December 17, 2010: Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, patching the AMT through 2011 and extending the Bush tax cuts to the end of 2012.

August 2, 2011: The President signed the Budget Control Act of 2011. This act provided that, if the Joint Select Committee did not produce bipartisan legislation, across-the-board spending cuts would take effect on January 2, 2013. The Budget Control Act of 2011 was enacted due to the failure of the 111th Congress to pass a Federal Budget and therefore as a compromise to resolve a dispute concerning the public debt ceiling. Deficit spending previously appropriated by Congress was bringing the federal government’s total debt close to the statutory ceiling. Republicans in Congress refused to approve an increase in the ceiling unless there were deep spending cuts in order to come closer to a balanced budget and reduce the amount of national debt that was accruing. The Budget Control Act included an immediate increase in the debt ceiling. It also provided for automatic spending cuts to begin on January 2, 2013. The year-over-year changes for fiscal years 2012–2013 include a 19.63% increase in tax revenue and 0.25% reduction in spending. These changes would return tax revenue to approximately its historical average of 18% GDP, while continuing to spend at dollar levels held approximately the same since 2009. Some major programs, like Social Security, Medicaid, federal pay (including military pay and pensions), and veterans’ benefits, are exempted from the spending cuts. Spending for federal agencies and cabinet departments would be reduced through broad, shallow cuts referred to as budget sequestration.

February 22, 2012: Obama signed into law the Middle Class Tax Relief and Job Creation Act of 2012, which extended the following provisions until December 31, 2012: the 2% Social Security payroll tax cut, federal unemployment benefits and the freeze on Medicare physician payments.

February 29, 2012: Ben Bernanke popularized the term “fiscal cliff” in his testimony before the House Financial Services Committee.

July 3, 2012: IMF head Lagarde warned that the threat of “going over the fiscal cliff” could weaken the US economy. The IMF also reduced its projection for US growth in 2013 from 2.4 to 2.25 percent of GDP.

July 17, 2012: Bernanke pushed Congress to avoid the fiscal cliff, warning that a failure to do so will further dampen the sluggish economic recovery.

July 25, 2012: the U.S. Senate voted 51–48 to pass a bill supporting the President’s tax proposal which extended cuts for most taxpayers, while rejecting the Republican proposal of extending the tax cuts for all 45–54.

August 1, 2012: The U.S. House of Representatives rejected the President’s tax proposal, 170–257.

July 31, 2012: Reid and Boehner agreed on a continuing resolution that would pay for the day-to-day running of the government until the end of March 2013. This does not affect the fiscal cliff or the debt-ceiling.

August 7, 2012: Obama signed the Sequestration Transparency Act of 2012, which directed his administration to detail in 30 days how they plan to implement the automatic cuts mandated by the Budget Control Act.

September 14, 2012: Obama released his 400-page document detailing cuts: http://cdn.govexec.com/media/gbc/docs/pdfs_edit/091412cc1.pdf

October 22, 2012: At the third of three presidential debates, Obama says sequestration will not happen.

November 16, 2012: US leaders announced that they met to discuss the fiscal cliff and perhaps develop an approach that would be ready to present the week of November 26, 2012.

November 30, 2012: Obama is supporting an undeclared amount of spending cuts, $1.6 trillion in higher taxes over ten years, and cuts of $400 billion from Medicare and other benefit programs over a decade. Also, Obama wants to include “an extension of the 2 percentage point payroll tax cut” and spend “at least $50 billion” in 2013 “to boost the economy.”

Captain Rick: Obama’s desire to extend the 2% Social Security payroll tax cut is very wrong! Thankfully the “Fiscal Cliff” will kill this very stupid and reckless tax cut that has been raiding Social Security funds for the past several years.

December 2012: The U.S. Congress and President Obama remain in a stalemate…and that is good…because anything congress does to water down the “Fiscal Cliff” will haunt America for decades to come.

I welcome you to follow this continuing story as I present why the “Fiscal Cliff” could have been better labeled … the “Fiscal Slope” to better economic times.

View the entire series here: https://atridim.wordpress.com/category/fiscal-cliff-course-101/