Pimco's McCulley's disturbing 2001 market commentary

This is the kind of news that will fuel many conspiracy theories. I am quite impressed and disturbed by McCulley's Market Commentary published back in July 2001. Here's what this Managing Director at PIMCO wrote at that time:
I’m fundamentally bullish on American business, as are Mr. Greenspan and Mr. O’Neil. Good businesses with bad balance sheets are fixing their balance sheets, and bad businesses with bad balance sheets are going out of business. This is the way that capitalism is supposed to work. Unlike Mr. Greenspan, however, I see no reason whatsoever to anticipate a return to robust business investment any time soon. To expect such a thing after a bubble is to put out the landing lights for Amelia Earhart. She may return, but I see no reason to bet it that way. Bubbles do not re-bubble for a very, very long time after they blow up.

But that does not mean that the American economy is a fundamentally bad business, just that it must change, with a shifting of resources away from business investment to household investment and consumption. And a housing bubble fits the bill. So I’m not critical of Mr. Greenspan at all for helping to inflate one, despite bellyaching about mal-investment from members of the Austrian School of economics (there must be a lot of you, gauging from the volume of email I get accusing me of intellectual or moral bankruptcy, or both!). Better a bellyache than an empty belly, I say.
So the questions are numerous, but here's a sample:
  • Is this market commentary genuine?
  • Was Greenspan's goal to create a housing bubble?
  • Was Greenspan capable enough to pull such a thing at will?
A few certainties as well:
  • PIMCO is an evil company, and has been for quite some time.
  • Members of the Austrian School of economics were right about McCulley 's intellectual AND moral bankruptcy (both!).
  • Krugman is an idiot, and has been for quite some time.
I found this market commentary while digging for confirmation after reading Karl Denninger's post about a report Krugman wrote in 2002.


Anonymous said...

Um, doesn't it look like PIMCO just took advantage of the facts on the ground, rather than being a cause of the problem?

Why is Krugman an idiot?

pej said...

Well, it's exactly as you say. But the fact that PIMCO is knowlingly trying to make profit out of people's misery is what I would call "evil".

You might also want to have a look at this post: What Bill Gross Wants, Bill Gross Gets

As for Krugman being an idiot, it simply the fact that he still believes in Keynesian B.S. which has been proven many times by history that it doesn't work and only spreads fiscal and economic disasters.

Anonymous said...

Not all that evil to be applying skill and fiduciary care for the benefit of many millions of investor's pension & retirement accounts.

pej said...

Reminds me of the "Investors' Yachts" story:

a story from the past when an investor was being wooed by an investment banking house who showed them all the trappings of their wealth and a tour of the bankers' yachts. Their idea was to make him feel secure about placing his money with them. However, he investor asked the salient question, "Where are the investors' yachts?" There you have it.