If you read to the very last paragraph, Gross says his bet is that the Fed will favor homeowners and cut rates. That may not be based on his view of what is correct, but on the history of the Fed since Greenspan of having a pronounced bias towards being accommodative.

The Fed has become unduly concerned with asset price preservation (Greenspan was obsessed with the stock market, which is not the Fed’s job). But I have been saying that this liquidity creation has to end badly. Too much capital is going into speculative activity and dubious investments (which in some cases are otherwise good investments at excessive prices).

Nope, not at least from what you clipped from the FT. Gross believes, as do I, that the Fed is caught in a double bind: Damned (by one constituency else the other)if they raise rates, damned if they don’t.

Gross: “…if housing prices were to fall by 5 per cent or more over the next 12 months? …the Fed must cut. Stock prices up by 15 per cent or more over the next 12 months? …the Fed must raise rates”

My questions: What happens if we get both? What happens if either “fix” is effected? Speculative fever is not easily abated. Depressions last a long time. Trouble everywhere.

The Fed is pretty much caught like a deer in the headlights. This problem should have been addressed in the mid-1990s. It was not. Now we are likely to have to endure some hell in the wake of indecision, incompetence, bad finance theory and practice, etc.

Or maybe I, along with Michael Panzner (Financial Armageddon), Nassim Taleb (The Black Swan, Fooled by Randomness), and a host of others are just plain stupid, blind, or otherwise deluded.