Staying rich is set to become a struggle, says Bill Gross
US citizens will discover that wealth will become harder to generate in the years ahead, according to Bill Gross, managing director of bond manager Pimco.
In his latest investment outlook, republished below by permission from Pimco, he said: "Deleveraging, reregulation, increased taxation and compensation limits will allow only the most skilful - or shadiest - into the Forbes 400."
He recalled that French author Balzac said two hundred years ago: "Behind every fortune likes a great crime." This was because the only easy way to accumulate wealth prior to the advent of capitalism and productivity gains was to steal it. Or, in the case of kigns, to tax it.
More recently, fortunes were developed by individuals who persuaded banks to lend you money to take best advantage of a secular uptrend. He points out that doctors, airline pilots and car dealers used to dominate country clubs: "Now, the only golfers who shank seven irons into the lake are real estate developers, investment bankers or heads of investment management companies."
But from now on: "Of one thing you can be sure. Over the next several decades the ability to make a fortune by using other people's money will be a lot harder." Wealth is growing faster outside the US, whose fortune-producing capabilities are on the decline. He notes that US debt as a percentage of GDP could easily exceed 100% in five years: "A level that the rating services - and more importantly the markets - recognise as the point of no return."
The current budget deficit of $1.5 trillion is capable of ballooning to $10 trillion over the next twenty years, taking account of federal spending on social security and health care. Potential public sector debt issuance, plus debt repurchase by the Federal Reserve, has serious inflationary implications.
Gross concludes: "Staying rich is this future world will require strategies that reflect this altered vision of global growth." Wealthy individuals need to diversify out of the dollar before central banks and sovereign wealth funds do the same.
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