A Gross Conundrum: A Bull Market in Everything
By Steve Sjuggerud
October 5, 2007

Bill Gross does something that few do on Wall Street. He freely speaks his mind.

He recently spoke up again... and what he said generated some controversy. I believe it will fuel a bull market in everything (except the U.S. dollar for now). I'll share Bill's recent thoughts with you today...

Bill Gross, if you don't know, is the world's biggest fund manager, responsible for some $700 billion in assets. He doesn't have to kowtow to the boss, or to some committee. He is the boss... He is the committee.

I spent some time with him over the summer. I told him I appreciated his candid investment letters. I asked him how he could speak so freely. He said something like "most people don't listen to me anyway... half disagree and the other half think I wouldn't honestly tell you what I really think, as it might jeopardize my investments. So nobody listens... therefore I'm in the clear." OK...

In his latest missive, Bill says the U.S. Federal Reserve and the Treasury Department are in a pickle... On the one side of things, do they try to save homeowners from distress? If they do, they'll create yet another asset boom on the other side. Specifically, Bill said:

"In prior decades a 'one-size-fits-all' policy rate move has... affected households and corporations alike. The same 4.75% rate is not and cannot be 'neutral' for both sides in today's U.S. economy."

Here's the pickle... It comes down to interest rates...

Current interest rates "are not restrictive for investment-grade corporations with global opportunities," Gross said. But they "are far too high for homeowner Jane Doe and 2 million of her neighbors facing higher and higher monthly payments on adjustable rate mortgages."

So what should be done?

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Gross sums up the risks from both sides: "Should [Fed Chairman Ben] Bernanke put on a brave face and freeze rates in mid-descent, he risks exacerbating a housing crisis in the making. Yet, should he favor the homeowner over the corporation, he risks reigniting speculative equity market behavior, and... a run on the dollar."

Gross' view is that the Fed should cut interest rates to 3.75% over the next six to 12 months.

If Gross is right (and his successful track record over many decades shouldn't be trifled with), then we should see speculation return and a run on the dollar. And that's exactly what has happened since the Fed cut the discount rate in mid-August.

If Bill is right and the Fed chooses to help the homeowner, then we'll see a bull market in just about everything (except the U.S. dollar).

I think the bull market in everything is already here. Position yourself accordingly...

Good investing,

Steve

Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.

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