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The Short Answer
Old 10-06-2008, 05:45 PM   #1
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The Short Answer

Summary and Investment Conclusions
Future economic textbooks will likely teach that while capitalism is the most dynamic and productive system ever conceived, it is most efficient when there is a delicate balance between private incentive and government oversight. The benevolent fist of government will now join hands with Adam Smith in a most visible manner. Because it will, expect a lengthy recession but not depression, accelerating government deficits approaching a trillion dollars as forecast here in this Outlook several months ago, and the eventual rise of inflation and longer dated bond yields. For now however, it is best to focus on the potential unfreezing of commercial paper and a globally coordinated policy rate cut. Own the front ends of Treasury/LIBOR yield curves. Agency mortgage-backed securities will also benefit from Treasury buybacks. Stay liquid, remain in high quality. It is prudent at the moment to fear McFear itself.

William H. Gross
Managing Director

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Old 10-06-2008, 05:55 PM   #2
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They figured this out in the 1930s!

Somehow, by the 2000s, many of the financial gurus - especially those charged with protecting our financial institutions - had forgotten that capitalism, unfettered, can easily go unstable.

The OP is from Gross' most recent commentary where he reminds us that "capitalism is the best and most effective economic system ever devised, but it has a flaw: it is inherently unstable." PIMCO - Investment Outlook Gross October 2008 Fear

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