Still, while such a transformation is, to put it mildly, undesirable, the policies are necessary. As outlined in these pages, the U.S. and many of its G-7 counterparts over the past 25 years have become more and more dependent on asset appreciation. Under the policy-endorsed cover of technology and somewhat faux increases in financial productivity, we became a nation that specialized in the making of paper instead of things, and it fell to Wall Street to invent ever more clever ways to securitize assets, and the job of Main Street to “equitize” or, in reality, to borrow more and more money off of them. What was not well recognized was that these policies were hollowing, self-destructive, and ultimately destined to be exposed for what they always were: Ponzi schemes, whose ultimate payoffs were dependent on the inclusion of more and more players and the production of more and more paper. Bernie Madoff? [1]

Hello! Yesterday’s monthly PIMCO commentary has by now been widely parsed by bloggers and the mainstream.  It’s clearly motivated by many things, including Bill’s own intense desire to keep looking himself in the mirror in the morning.

That text is so wide-ranging Doomers could use it to launch discussion on just about anything.  This is an open thread — go to it!

For pure cynicism it’s hard to beat this section.  If I’m reading the tea-leaves correctly Bill’s softening up his customers for a future announcement that he’s sold much of PIMCO’s Agency Debt holdings to Treasury and diversified into munis.  Thoughts?

Still, future policymakers must confront the reality that is, not the one that should have been. And investors must do likewise, casting aside personal philosophies for a clear-headed view of the future horizon. PIMCO’s view is simple: shake hands with the government [emphasis in original this time]; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks, and senior bank debt; Aaa asset-backed securities such as credit card, student loan, and auto receivables. These have been well-advertised PIMCO strategies over the past 6 months but there are others in clear sight. An Obama administration will quickly be confronted by the need to provide those hundreds of billions of dollars to states and large municipalities. Their requests total nearly a trillion dollars and to think California or NYC would be allowed to fail is, well – unthinkable. Municipal bonds then, selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2½% 10-year Treasury cannot.

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[1]: "Andrew Mellon vs. Bailout Nation", by Bill Gross, PIMCO, January 8, 2009.