PIMCO’s Ring of Fire

Scroll down for writing prompts, bloggers & newsletter writers.

In my occasional series of publicly (and respectfully) editing business writing, this time I offer unsolicited advice to PIMCO, a leading global investment management firm, which publishes respected and widely-read newsletters.

Today I read  The Ring of Fire, written Mr William H. Gross, a founder of PIMCO who oversees the management of more than $800b of fixed income securities (among many other things). It started off well enough with a personal reflection on his long and distinguished career and the careers of others, but I’d have shortened this part by a couple of paragraphs.

Then the segue:

There have been numerous changeups and curveballs in the financial markets over the past 15 months or so. Liquidation, reliquidation and the substituting of the government wallet for the invisible hand of the private sector describe the events from 30,000 feet. Now that a semblance of stability has been imparted to the economy and its markets, the attempted detoxification and deleveraging of the private sector is underway.  Having survived due to a steady two-trillion-dollar-plus dose of government “Red Bull,” Adderal or simply black coffee, the global private sector is now expected by some to detox and resume a normal cyclical schedule where animal spirits and the willingness to take risk move front and center. But there is a problem. While corporations may be heading in that direction due to steep yield curves and government check writing that have partially repaired their balance sheets, their consumer customers remain fully levered and undercapitalized with little hope of escaping rehab as long as unemployment is at 10-20% levels worldwide. “Build it and they will come” is an old saw more applicable to Kevin Costner’s Field of Dreams than today’s economy. “Say’s Law” proclaiming that supply creates its own demand is hardly applicable to a modern day credit-oriented society where credit cards are maxed out, 25% of homes are underwater, and job and income creation are nearly invisible.

OK, before you look at my table of edits below, ask yourself “What does he want me to know? What should I expect next?” Myself, I didn’t predict that he’d head into a global economic analysis since the segue focused exclusively on America. This isn’t fiction, or even narrative nonfiction,  Mr Gross, this is business writing. Point the headlights where you intend to steer the vehicle.

Surgical edits to what WAS written

I’ll say this, the article is full of writing prompts

My editing scalpel safely retired to the autoclave, I took some points from Mr Gross’ article to help bloggers and newsletter writers in search of a juicy topic.

• The PIMCO Ring of Fire includes the US, Japan and six European countries whose public debt is most likely to reach 90% of GDP (with an ensuing 1% fall in growth). If you look at the graph (a nice one) you’ll see that the countries identified as less likely than those in the Ring of Fire to stumble are Sweden, Germany, the Netherlands, Canada, Norway, Finland, Denmark and Australia. Mr Gross says these countries are “considered to be most conservative and potentially more solvent, with the potential for higher growth.” If you’re a Forex trader advisor or investor, does this have any bearing on your recommendations or holdings?

• Mr Gross argues for tilting growth-focused (and currency) assets toward countries like China, India and Brazil. What’s your position and why, advisors and investors?
  

• If you want to avoid developing economies, Mr Gross says look north to Canada, our more conservative neighbor (I wrote about this here). He also says to avoid the UK. How does this inform your investment strategy?
  

• Last year Denmark (one of the countries farthest from the Ring of Fire) was named “The happiest country on Earth” by social scientists at Blue Zones Project . ABC ‘s 20/20 story homed in on the social egalitarianism of Danes, who don’t derive great personal status from their job choices. “Denmark is what is called a ‘post consumerist’ society. People have nice things, but shopping and consuming is not a top priority. Even the advertising is often understated. Along with less emphasis on ‘stuff,’ and a strong social fabric, Danes also display an amazing level of trust in each other, and their government.”  Comment on what this might foretell about the path of American deleveraging– do the Danes lead you to believe the deleveraging Mr Gross describes might not be all that bad after all?

• While we’re on the subject, Danes pay some of the highest taxes in the world — between 50 percent and 70 percent of their incomes. In exchange, the government covers all health care and education, and spends more on children and the elderly than any country in the world per capita. What say ye about health insurance reform, Americans?

• In the most recent study of happiness, directed by University of Michigan political scientist Ronald Inglehart and administered from Stockholm, “the survey found that freedom of choice, gender equality, and increased tolerance are responsible for a considerable rise in overall world happiness. The results shatter the more simplistic and traditionally accepted notion that wealth is the determining factor, says Inglehart.”  Is it possible that we Americans can learn to see ourselves — and each other — differently after this shared economic hardship?

Editing the Fed

I’ve been so bold as to edit Prince Charles and the pope, so why not the Cleveland Federal Reserve Bank?

Consider the Fed’s analysis of Canadian vs. American housing and lending trends.

Why Canada might be “a country that got things right”

The report led off well enough:

Housing markets in the United States and Canada are similar in many respects, but each has fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust.

It’s written in easily-understood prose and comes to a succinct conclusion. But if you read the report (and re-read once or twice), you’ll agree that my re-write would have been a better approach, not just by virtue of the writing, but also by virtue of the more comprehensive (and candid) conclusion:

Unlike the U.S., Canada has not experienced a dramatic increase in mortgage defaults, nor has any Canadian bank required a government bailout. This article explores the differences between the two countries’ monetary policies, financial services structure and regulation, and the kinds of mortgage products offered. While the primary culprit behind the American financial services crisis was the rise in subprime loans,  those products, and indeed the housing bubble itself, were enabled by monetary policy and financial services regulation.

Conclusions drive structure

An introduction like this would have led to an entirely different STRUCTURE of the paper, as well.  As written, the Fed meandered through data on housing prices, loan-to-value stats, delinquency rates, central bank target rates, and benchmark mortgage interest rates before getting around to contextualizing them. Most readers’ eyes were glazed over by then.

I would have taken the inverse approach, noting the differences in subprime booms between the countries (and the American bust) and then comparing and contrasting the factors that DROVE those differences, including monetary policy and regulation.  I would also have quoted sociologists on the differences in risk tolerance between us and our “neighbors to the north” as we so often call them.

The Fed is not apolitical, so I guess I should give a nod to the possibility that it was motivated to obfuscate.  Alas, these are the times in which we live.