US recession much closer than imagined
The chances of a United States recession or even a decline are closer than imagined warned Bill Gross, an influential financial guru who manages the largest mutual fund in the world with assets of 450 billion US dollars.
"US officials are close to running short of fiscal and monetary fuel (cutting taxes and interest rates) which they have been using to promote growth", and when options run out, a general softening can be expected.
"If the pumps of (financial) assets dry up?then the inevitable is that the US economy will at best experience a contraction of growth, and a recession as a more realistic alternative", warned Mr. Gross in his latest review.
Mr. Gross is recommending his clients to take refuge in long term bonds in spite of the current poor yields. This week the ten year US federal funds was yielding 3,93%.
"Assets could cease to expand at two digits, scarce inflation and meagre economic growth could wither and Rome will be up in flames", anticipates Mr. Gross adding that if "Rome is up in flames yields of long term bonds will predominate, and that day can be much closer than we expect".
Mr. Gross believes that United States low interest rates, lower taxes and the overall weakness of the US dollar have caused the real estate and stock exchange markets to soar, as well as boosting consumption. But there has been no investment or jobs, which have gone instead to Asia.
"The legs of this US recovery are weak because they are based on an appreciation of assets and the appreciation of future assets is intrinsically vulnerable given the debilitated stimuli from interest rates", argues the mutual fund guru.