Posted by: jhamon | July 8, 2009

From Supersized to Superslim Economy

From Bill Gross (PIMCO) in his monthly letter:

The supersizing of financial leverage and consumer spending in concert with the politicizing of deregulation describes in fifteen words our most recent brush with irrational behavior and inefficient markets. Greed will come again. But for now, the trend is the other way and it promises to persist for a generation at a minimum. The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007. Global estimates are less reliable, but certainly in multiples of that figure. And when potential spenders feel less rich by that much, the only model one can use to forecast the future is a commonsensical one that predicts higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2 as opposed to 3½%. There’s no magic in that number, and no model to back it up, just a lot of commonsense that says this is how people and economic societies behave when stressed and stretched to a near breaking point.

BTW, Gross isn’t implying the end of the world or the end of the economy.  But the “buy the market” and “buy and hold” stock marekt game is off the table

Even in a persistently difficult economy, breakout technologies and new industries will arise that drive exceptional profits and the stocks of those companies will outperform.  So going forward, making money in the equities markets will involve:

  1. Stock Picking: selecting stocks with exceptional fundamentals – both long and short.  Don’t depend upon a bull market to make money.
  2. Trend Trading: buying stocks that are going up, and shorting stocks that are going down.  Cut losers quickly and ride winners.
  3. Powerful Risk Management:  quantifying, monitoring and managing portfolio dollar risk on a daily basis.  Leverage is a four letter word.

That’s exactly how we’ve constructed our Absolute Return Equity Strategy (ARES) program.



  1. HI,

    Nice post whole material was informative


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