Dear Mr. President ...

Dear Mr. President (and Mr./Ms. Investor): You have inherited a mess.

This is the subject of a recent monthly investment-outlook newsletter penned by Bill Gross. Gross, reputed for his quirky style, happens to manage the $130 billion PIMCO Total Return Fund (the world’s largest bond fund), and he makes the case for portfolios that are positioned to cope with the next few years.

“Your predecessor,” Gross writes, “promoted deregulation and free markets when, in fact, the markets and their institutions needed tough love. Your administration will produce the first trillion dollar deficit. While the Republicans will blame you for years and label you “Trillion Dollar Obama” in future campaigns, there is in fact not much that you or any other President can do.

You’ve inherited an asset-based economy whose well has been pumped nearly dry with lower and lower interest rates and lender of last resort liquidity provisions that have managed to support Ponzi-style prosperity in recent years. Foreign lenders have cooperated by purchasing Treasuries at yields which when combined with dollar depreciation have resulted in negative returns on their money.”

Gross does not paint a rose picture. While the accuracy of his prediction about the future U.S. president remains to be seen – he thinks it will be Barack Obama — there is little room to argue about the validity of his overall analysis and outlook. Gross compares the years ahead for the United States with Japan’s 10-plus year struggle, following its property bubble in the late 1980s and subsequent efforts to get the economy back on track.