Tuesday, October 2, 2012

Ring of Fire

I fell into a burning ring of fire
I went down, down, down and the flames went higher
And it burns, burns, burns, the ring of fire
The ring of fire
 

Johnny Cash - Ring Of Fire (Live At Montreux 1994)
Johnny Cash - Ring Of Fire (Live At Montreux 1994)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Today, Bill Gross of PIMCO (the worlds largest bond manager) released his October Investment Outlook, where he talks about his long-term memory loss, and the pending US fiscal cliff. Now Bill is a pretty smart man, his net worth of over $2 billion was made managing bond portfolios, and he's also a democrat (not that there's anything wrong with that). He does a very nice job articulating and condensing the views of the CBO (Congressional Budget Office), the IMF (International Monetary Fund), and the BIS (Bank of International Settlements), regarding the US fiscal gap (Debt/GDP). 
 
In summary, if you average out the financial prognostications of these organizations you come to the realization that the US needs to reduce its "fiscal gap" by 11% per year, via a combination of tax increases and budget cuts. Now 11% doesn't sound like a huge number, but its equal to $1.6 trillion per year! The soon to expire Bush tax cuts equal $200 billion. The Super Committee Grand Bargain plan from Congress and the President that failed to even go to a vote would have cut $400 billion. We need to do at least four times that amount every year! 
 
Again, Bill Gross runs the worlds largest bond fund, and these are his words, "Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the "Ring of Fire."" 
 
The worlds largest bond fund manager is telling you that unless some serious steps are taken in the near future to significantly lower our deficit, any money you have invested with him will burn.
 
It is certainly worth a read, enjoy:
 

I'll be sending out a 3rd quarter review shortly.  
 
Rockhaven Views Blog Link


Be careful out there,
 


Chris Wiles, CFA
President & Portfolio Manager 

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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author's opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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