Bill Gross is out with his monthly newsletter and it is a bit of a puzzler. Paul Kedrosky remarked that it had him scratching his head and looking for an embedded code.

I took it as a statement that the rules of the free market game have been changed by the government, that those rules are at this point in time evolving and life under these new rules is likely to be less lucrative for investors. Gross doesn’t bemoan this turn rather he suggests some ways to live with them.

Here is how he describes the shift:

2009 is a similar demarcation point because it represents the beginning of government policy counterpunching, a period when the public with government as its proxy decided that private market, laissez-faire, free market capitalism was history and that a “private/public” partnership yet to gestate and evolve would be the model for years to come. If one had any doubts, a quick, even cursory summary of President Obama’s comments announcing Chrysler’s bankruptcy filing would suffice. “I stand with Chrysler’s employees and their families and communities. I stand with millions of Americans who want to buy Chrysler cars (sic). I do not stand…with a group of investment firms and hedge funds who decided to hold out for the prospect of an unjustified taxpayer-funded bailout.” If the cannons fired at Ft. Sumter marked the beginning of the war against the Union, then clearly these words marked the beginning of a war against publically perceived financial terror.

Gross then meanders around a bit talking about how Pimco is adjusting to these changes and protecting the interests of his clients. He also spends a paragraph or two sort of justifying Obama’s tack, even suggesting that the “rebalancing of wealth” is something he supports and is long overdue. I suppose that if you are a target the size of Pimco it’s not likely that you’re going to be first on the ramparts.

He does eventually get to a conclusion as well as his prescription for surviving and one would hope prospering at least a little in the new environment:

This Outlook is not to bemoan this transition, but to recognize it. Slower growth can be a public good if it avoids the cataclysmic effects of double-digit unemployment, escalating foreclosures, and fear of financial insecurity. But the Obama cannon shot will have financial consequences. Do not be deceived by the euphoric sightings of “green shoots” and the claims for new bull markets in a multitude of asset classes. Stable and secure income is still the order of the day. Shaking hands with the new government is still the prescribed strategy, although it should be done at a senior level of the balance sheet. If the government indeed becomes your investment partner,  you should keep the big Uncle in clear sight and without back turned. Risk will not likely be rewarded until the global economy stabilizes and the Obama rules of order are more clearly defined.

The ghost of Bernard Baruch still counsels that 2 + 2 = 4, but the repercussions of getting something for nothing should dominate the hopes that mankind will get off the deck and revert to a mean or median standard representative of outdated political and economic philosophies. Mohamed El-Erian’s and PIMCO’s “new normal” should trump green shoot exuberance for years to come.

There seems to me to be several cautions contained in these two paragraphs.

One, asset returns across the spectrum are likely to be less robust under the new regime.

Two, if you are in bed with the government or exposed to finding yourself in bed with them be very sure that you are first in line for repayment and don’t trust what they tell you.

Three, until the rules are defined risk is not going to be properly rewarded, so don’t take on excessive amounts.

And, four, the old days are gone and they ain’t coming back.

I may not like it but I think Gross is right. Obama means to and in fact is redefining how capitalism is this country is going to function and that’s going to mean less return to investors.