Who’s the smartest guy on the block?
Not Bill Gates — Microsoft is the past, not the future.
Not Warren Buffett — he managed to lose plenty during the world financial meltdown, even though he knew it was coming.
Not Nobel laureate/New York Times columnist Paul Krugman — he writes eloquently and convincingly, but he’s not always right.
And certainly not the once and future Masters of the Universe on Wall Street, who put a match to the world economy and let the rest of us pay to put it out.
Nope, the smartest guy on the block is Bill Gross, the founder and managing director of Pacific Investment Management, the world’s largest bond fund. Gross saw the storm coming, took shelter, made money and wrote about it.
His monthly letters, posted on Pimco’s Web site, are well-written, prescient and funny. Imagine the gravitas of Warren Buffett crossed with the brilliance of Tom Friedman with the unbuttoned hilarity of Dave Barry.
Here’s an excerpt from last month’s missive.
“‘Kill the umpire,’ the fan cried to open the 1996 baseball season in Cincinnati, and eight pitches later, the man behind the plate, John McSherry, was dead, all 320 pounds of him screaming for more and more oxygen to feed his spastic heart.
“He’d been killed by a billion molecules of sink-clogging, Drano-resistant cholesterol that fed on his coronary artery and sucked up his life’s blood like a vampire in the heat of the night. The next day Howard Stern had characteristically railed that the antidote was obvious. It was the same for all fat people: ‘Don’t eat,’ he howled.
“As if the ump hadn’t known. The fact was, he couldn’t stop. He loved the taste of food — every sugary, fat-ladened, carbohydrated morsel. The first bite was a special ecstasy, as was the last, and everything in between.”
Gross connected the ump’s lust for food with our late national obsession with real estate, consumer goods and an ever-rising stock market. He doesn’t think that good, greedy times of yesteryear will return — not for at least a generation.
“The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007,” he wrote. “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 3.5 percent. 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.”
By the exercise of such common sense, Gross has become a billionaire — and that’s by running a carefully conservative, albeit imaginatively managed, bond fund. No two and 20 for Gross, no too good to be true Madoff sleight-of-hand.
That’s why, in our chilly new age, we ought to listen to Gross, and forget the prattling Pollyannas of positivism.
This might be, as Gross suggests, a time not unlike the period from 1968-1983. During those 15 years, the Dow scarcely budged, corporate profits stagnated, businesses grew slowly, if at all, and the country, as Jimmy Carter famously did not say, suffered through a time of malaise.
I know, I know — the Dow’s topped 9,000, housing sales and new construction are both up, and it looks as if the world economy is slowly healing.
But rather than sustainable economic growth, we may be seeing the famous “dead cat bounce.” Wall Street traders, whose sense of humor was notoriously nasty and irreverent, use to say that “even a dead cat’ll bounce if you drop it 40 stories.”
Based on nothing more scientific than a dozen casual conversations, I think Gross is right. Everyone I know, without exception, is cutting back. No one’s buying a new car, or thinking of moving into a bigger house or planning an elaborate vacation. No more champagne and lobster — how ’bout happy hour chardonnay and a shared plate of nachos?
But be of good cheer! The nattering nabobs of negativity never rule the roost for more than a decade or so — by 2020, or 2025, we’ll be in midst of another roaring bull market. Do I hear DJIA 20,000? 25,000? 30,000?
Enjoy it! By that time, I’ll be cheering on the boom from either the nursing home or the cemetery. And meanwhile, I’ll leave it up to the young folks to set the stage for a new era of prosperity. Should be easy enough — all you have to do is …
Balance the federal budget.
Make Medicare, Medicaid and Social Security solvent and sustainable.
Pay back the trillions we owe to the Chinese, the Saudis and everybody else we hit up for loans.
Reform health care.
And finally, bring peace, stability and lasting prosperity to the Middle East.
Did I forget anything — oh yeah, and also would you take care of global warming, ocean pollution and get rid of reality shows?
John Hazlehurst can be reached at John.Hazlehurst@csbj.com or 227-5861.