Bill Gross and Other Musings

Bill Gross has been making the rounds this week saying that the Fed is closer to the end of the tightening cycle than most people think. He believes there will be one or two more increases by the Fed. I have been saying for ages that I thought the Fed would go to some sort of neutral stance on the current run and that neutral might mean 2.5% to 3.25%. In last few days I have been thinking 3% or 3.25% would be about right. I am not sure what Bill has been doing in his fund but he has been wrong with a lot of his public comments starting with his Dow 5000 call in 2002.

I haven't changed my mind about where Fed Funds will end up but if I think it makes sense to analyze what would make me wrong and then what action to take if I am wrong. Because really who cares about being right or wrong. If the markets dictate changes, you make changes.

One thing that could go wrong is that Nicole Elliott will be right and the dollar will go to new lows. At some point a dollar that is too weak could force the Fed's hand. A lot of people say a decline in the dollar is ok as long as its orderly. I find this to be a wildly empty thought. It is more logical that at some point a decline, orderly or not, will cause a series of events to occur that will impact US markets. I'm not sure if this will happen but it is possible that Stephen Roach will be right.

I think the globalization of the world economy means that if something bad does happen in the States, a lot of capital will flow to foreign equities. I have touched on this before. There are many ways to get foreign exposure. There are new ADRs, ETFs and CEFs coming to market all the time. If you have not already done so I would urge anyone reading this to start learning about investing outside the US.

In my personal financial plan I only need 7% annual growth to get where I want to be. I have a very low personal benchmark by design so I don't need to spend time trading or worrying about my account, that would take away from my clients. Large dividends from foreign stocks provide a big chuck of the 7% I think I need. I don't care where my return comes from, just that I get it. I haven't delved much in to strategy for our personal accounts much. That might be worthwhile for a future posting. I don't mean a talking my book type of article, but talking my strategy. Hopefully the difference is clear.