"FORWARD!" He Says

 

PIMCO forecasts global growth of 1.75 percent in the year through September 2013, weighed down by a euro-zone recession and a slowing pace of expansion in China. Repeatedly, they have been been warning that all of the political/fiscal hoopla that has been going on has much more far-reaching consequences than what people are expecting. With all of the fiscal theater that is going on, the US is contributing to a larger pool of volatility and uncertainty—in such a fragile state, it’s quite possible that not only will politicians spook investors, not get much work done and ultimately do what amounts to twiddling their thumbs and we slowly lumber toward a financial sinkhole (to the tune of $600B), but it also (from a macro perspective) increases the probability that the US could get downgraded.  Granted, they said this before we (as a country) knew who are new president is going to be, but with the nosedive of stocks that occurred after Obama was elected, I think it’s clear to say that the Republicans are not the only people in this country that are reeling from election results (or, on the flip side, it shows us just how integrally political parties are intertwined with our financial market system). 

So what? What does this mean? I don’t want to make this post all about “How I Love Thee PIMCO, Let Me Count the Ways”, but it does ring true that several of the publications that I’ve read from PIMCO signal to me (as a personal investor) that we’re quick-approaching a cross-roads. 

In Bill Gross’ investment outlook for November, he talks about Flavor Flav, genies, Obama, Romney and Chris Berman from ESPN (yeah, he's that awesome). But he also hits on a metric that I had never really thought of before when I thought about the economy- the net national savings. I’ll be honest—I didn’t know what this was—(he does a good job explaining it in his outlook) but it basically means “the extent to which the US (corporations, government, households) are saving in order to offset the depreciation that comes from our existing investments”. (Un)surprisingly (?), it has been decreasing for a long time now—with a few bumps but overall downward trending since the 1970s. This means that, overall, we’re making less real return on our investments than what you would think. The government has released a lot of funding to improve the economy, and although this has elevated asset prices (yay! The stock market is improving!) it isn’t actually improving our overall economic outlook.

Why is this important to me? Well, what if, hypothetically, you were in business school and you knew that you had left a lucrative job in order to define and pursue your dreams. If the economy is not setting itself up for sustainable growth and improvement over time (for a while now, it’s just that I haven’t caught it because I wasn’t an enlightened business school student)—you’re a little worried.  Across the hallways at Booth, I’m already hearing the screams of students—even louder than those of i-bankers the day that UBS announced their massive layouts. As they rush past me, clutching their name badges and the tear sheets about all of their “dream” and “safety” companies, their thoughts are clear on their faces-- Forget about the instability in the world economy! This is beginning to affect me for real now—I might not get a job! I echo their fear. The nation is in a highly perilous state. Politicking has done us no good, and now that we have signed on for another four years of Obama, there are high hopes that this means change. “FORWARD!” he had promised. We’ll have to wait and see. In the event that I can’t find a job, maybe I can volunteer for the next election campaign—the economy may go to hell but it seems like politics stop for no one.