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Strange Ally in Bill Gross

|Includes: BAC, Citigroup Inc. (C), JPM, WFC

For the second time in the past few months I find my self in agreement with Pimco's Bill Gross. That I agree with Mr. Gross may not seem odd to many of my readers, but I have been very critical of his talking his book of holdings in the financial media while being portrayed as giving altruistic advice. I have not been especially critical of Mr. Gross's strategies, only that he is not the good-hearted soul dispensing free advice to the investing public he is believed by many to be.

However, Mr. Gross's letter to clients expresses opinions very much in line with my own. First: Mr. Gross is of the opinion that government efforts to achieve artificial levels of consumption are wasteful or in his words: (It)can be compared to flushing money down an economic toilet." Secondly: He states that deleveraging, stiffer regulations and protectionist policies create strong headwinds which hold back growth.He refers to the aforementioned conditions the "new normal."

I believe Mr. Gross is dead on. Consumers cannot and will not borrow as they did before. How much more can the Fed stimulate the economy than it has already has? Consumers are tapped out from over two decades of living through an almost a constantly stimulated economy. The amount of consumption required to achieve growth levels and unemployment rates seen during the past two-plus decades are fundamentally unsustainable.

Mr. Gross makes reference to Japan's perennially stagnant economy. Japan has had over a decade of rates down near 0.00% and still consumers save instead of spend. I do not believe U.S. consumers will go to the same extremes as their Japanese counterparts, but gone are the days of homes, cars and expensive appliances for anyone who can fog a mirror. Unfortunately, that is what it will take to create growth rates similar as to which we have become accustomed.

What about hiring? Balance sheets are strong, won't businesses hire? The will hire only if absolutely necessary. CEOs are being rewarded for doing more with less. Shareholders are pushing efficiency and productivity. It is not surprising that the one stronger sector in today's Durable Goods report was machinery. Still no signs of Luddites.

The Fed's Beige Book did not tell an encouraging story. The Fed's report on activity from its 12 regional banks stated: "Nearly all districts reported sluggish housing markets” since the home buyer tax credit expired last April 30th and several districts reported that manufacturing "slowed or leveled off. Growth is moving forward on the whole albeit at a modest pace.

The bond market is still on board with the modest growth story. Both yesterday's two-year treasury note auction and today's five-year treasury note auction were very will bid for, pricing at yields at or near record lows.

Disclosure: Long TBT, F, BAC, C, SIRI

Disclosure: Long: TBT, F, BAC, C, SIRI

Disclosure: Long: TBT, C, BAC, F, SIRI