Signup for our free newsletter:

Gross Stares Down "Financial Tsunami"

Written By Brian Hicks

Posted September 4, 2008






That’s how I would describe the markets today.

In fact, it is one of the ugliest days I have seen in some time. Everything is down.

And I do mean everything. Gold, oil, natural gas.  Down, down and down. The same is true for banks, financials, and tech.

Everybody is headed for the exits. And if you’re not long the dollar, bonds, of short funds you’re bleeding red everywhere you look.

Then there’s this bit form Bill Gross.

He’s talking “financial tsunami” and is wearing out one metaphor after another to get his point across.

So here’s Gross telling us what he really thinks in Bloomberg today.

It’s in an article by Jody Shenn entitled: U.S. Must Buy Assets to Prevent `Tsunami,’ Gross Says

The U.S. government needs to start using more of its money to support markets to stem a burgeoning “financial tsunami,” according to Bill Gross, manager of the world’s biggest bond fund.

Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm’s Web site today.

“Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,” Gross said. “If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.”

The government needs to replace private investors who either don’t have the money to buy new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are reluctant to fund financial firms after losses on investments they made to support the companies, Gross said. The world’s biggest banks and brokers have raised $364.4 billion in new capital after more than $500 billion in writedowns and credit losses since the beginning of last year.

Gross cast a bleaker view for the prospects of the world’s financial markets than in previous notes to clients.

As Fannie and Freddie, banks, securities firms and hedge funds shrink, yields on all debt assets will rise compared with benchmark rates and volatility will increase, Gross said. The declines will end once sellers have depleted their assets and sufficient capital has been raised, Gross said. Unless “new balance sheets” emerge, prices of almost all assets will drop, even those of “impeccable” quality, he said. (emphasis mine)”

Forget inflation.

Next up is deflation. And it’s going to be across all asset classes—except for bond and the dollar.

That’s because in a deflationary environment cash really is king.

Maybe that’s what the markets are telling us today.

See you at 10K on the Dow.