by Chris Becker
With the last US Federal Reserve FOMC meeting for the year starting overnight, Bill Gross had an interesting interview on CNBC recently whose core message has been overshadowed by his “no rate hike in 2015” call.
His actual message, that structurally the US economy can only grow GDP at 2% instead of its post-GFC rate at ca. 3-4% comes at the same time as Chinese authorities are managing a decline in the rate of growth for the world’s biggest economy:
tradingeconomics.com
From CNBC:
“Yes, we’re starting from a 3 percent growth economy that will probably persist for another quarter or so,” he said. “We get back to a relatively new structural growth rate, which is not 3 but probably 2 or even less.”
He attributed the decline to falling oil prices, which in turn affects industries such as fracking. Oil’s slide also “determines currency movements,” setting off a chain reaction.
“Then financial markets try and readjust,” he said. “Hedge funds reduce leverage and sell other positions.”
The verbiage that markets are clinging to are his rate comments on the Fed, where he contends that why would they raise rates in order to slow economic growth when inflation was going lower as markets ignore its mandate:
The shale revolution coupled with very easy monetary conditions has not led to as broad an economic revival as many think, reckons Gross, as this state-by-state chart of GDP, where the midwest dominates:
As oil remains in the doldrums and the junk bonds financing the shale revolution (with many marginal players now starting to fold) Gross may have a point.
Last night saw a strong reversal in US housing permits and starts, while monthly manufacturing PMI also reversed recent growth and slipped to a new 11 month low, not a good sign heading into the Christmas retail cycle:
Here’s the interview in full: