One of the most powerful men in the United States, Bill Gross, has put out his monthly letter and its a doozy. [Feb 21, 2009: Fortune - Is PIMCO's Bill Gross too Powerful?]   Nothing new to FMMF readers, but when the most respected of investment managers start waving the bubble flag, it's less easier to ignore then when the mavericks of the blogosphere do so.  That said, Gross essentially says the Fed is boxed in - at least using conventional Keynesian economic theory.

To reiterate the stance I've held for about 1.5 years now, I believe the economy is so structurally impaired we won't see rates increased throughout all of 2010.  Remember, Ben would much rather have new bubble than to be accussed of repeating the mistakes of the 1930s.

Quick hit from Bloomberg: PIMCO's Gross Says Risk of Bubbles Rise on Low Rates

  • Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the “systemic risk” of new asset bubbles is rising with the Federal Reserve keeping interest rates at record lows
  • The Fed is trying to reflate the U.S. economy,” Gross wrote in his December investment outlook posted on the Newport Beach, California-based company’s Web site today. “The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks.”  (i.e. in other words, destroy savers and push them into risky assets)
  • Raise interest rates with 15 million jobless and 25 million part-time working Americans?” wrote Gross, co-founder and co-chief investment officer of Pimco. “All because gold is above $1,100? You must be joking or smoking -- something.”  (bingo - they are boxed into a corner; gold is meaningless to Joe 6pack... the real worry will be if Ben prints enough to push oil over $100; then it begins to get interesting)
  • The “heavy lifting” will likely be done first by other central banks such as those in Australia and Norway that have already begun to increase interest rates, Gross wrote.  

Some interesting views on China:

  • China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland,” he added. China has kept its currency at about 6.83 per dollar since July 2008 to help sustain exports amid a global economic slump. 
  • With renewed upward appreciation of the yuan may come potentially volatile global asset price reactions to the downside -- higher Treasury yields, and lower stock prices -- which the Fed must surely be leery of before making any upward move, of its own,” Gross wrote.  

Thankfully, Ben's rose colored blinders shall remain on.

  • Fed Chairman Ben S. Bernanke said after a Nov. 16 speech in New York that it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor’s 500 Index from its March low.

The full letter is here; worth your time to peruse over a fine glass of Kool Aid wine.

Main takeaway: Ben Bernanke continues the war on evil American savers, much like his predecessor did, therefore he wants you to buy stocks ... now get to it!:

With the global financial system apparently stabilized, returns “on” your money are back in vogue, and conservative investors who perhaps appropriately donned a Will Rogers mask nary a fortmonth ago are suddenly waking up to the opportunity cost of 0% cash versus appreciated assets at renewed double-digit annual rates. That 0% yield is not a joke. Almost all money market accounts – totaling over $4 trillion dollars, shown in Chart 1 – yield close to nothing

[Jun 10, 2008: PIMCO's Bill Gross on the Inflation Fantasy]