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Wednesday, October 28, 2009

Bill Gross Worries About Asset Overvaluation

Reported by Daniel Tovrov

The November installment of Pimco director Bill Gross' monthly audio-cast Investment Outlook was particularly moribund: perhaps in celebration of Halloween, perhaps as an omen of a haunted economy.

With this latest podcast, Gross plunges again into the 'new normal' economy, worrying that almost all assets appear to be overvalued on a long-term basis. He also determines that policymakers need to maintain artificially low interest rates and supportive easing measures in order to keep economies on the “right side of the grass.”

"In the case of the U.S., the amount of the implicit and explicit financial support given by policymakers totals perhaps as much as $5 trillion, which goes part way to support the $15 trillion overvaluation of assets theoretically calculated in the PIMCO model (100% of nominal GDP)," broadcasted Gross "China, interestingly, is taking another approach, throwing equivalent trillions into their real economy to make things as opposed to support paper, if only because exports are at the heart of their economic growth and they haven’t caught the American virus or suffered, I suppose, a 'paper cut.'" 

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