Bill Gross' Investment Outlook (May/June issue):The Strange Tale of the Bare-Bottomed King - a brief section from the conclusion:

"Our point on the "Pump" then, is to suggest that in combination with a globalized free trade-based economy exhibiting a surfeit of cheap Asian labor, it will be difficult to generate U.S. inflation higher than our current 3% even if interest rates fall further. If 3% inflation is all we can get from the past 5-years' asset inflation, it's hard to believe that we get more from what's left. The potential to reflate via interest rates is nearly over.

Readers may remember our past few years' Secular Forum descriptions of the tug-of-war between disinflation and reflationary forces. We have proclaimed a winner based on our observation of massive fiscal and monetary global simulation described above, the limited inflationary response, and the lack of further ammunition. Long live our disinflationary King."

The Inflationary view comes from David Fuller, Fullermoney (May 23 Comment of the Day):

"Bill Gross' view is holding sway at the moment, judging from long-dated government bond yields and the stock market's rally following the March to mid-April sell off. If he's right in the longer-term forecast through 2010, then we have a generally benign environment for both bonds and equities.

Lastly, Japan's history over the last fifteen years is not a prologue for the rest of us. The Bank of Japan drove the country into deflation with an unnecessarily long monetary squeeze. The US Federal Reserve has repeatedly expressed its determination to avoid that problem. And how many more years of weak growth and rising unemployment before European Central Bankers become born-again inflationists?"

Re the David Fuller and Bill Gross commentary: I feel both are partly right.

I fear there will be rolling inflation AND deflation, in cycles that grow in amplitude until there is a failure in the global financial system. Nations are at trade war; hedge funds are being managed imprudently; major banks are so competitive that their prop desks are in daily trading wars. The industrial and retail sectors don't know where to turn.

It is a period where greater wealth is being transferred from the middle class to the rich than at any time in history. And, some people are fooling themselves if they believe that rising real estate prices are sustainable.

More importantly for me, these are also emotionally traumatic times personally and I have been questioning whether I should be pushing myself, but I feel that if I stop blogging for a couple weeks or months there is a good chance I will never return. I don't need to do this.

I'll figure it out soon.

Cordially,

/Bill