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.

In short, he says, “Your term will not go down in history as investor friendly”. Consumers and investors alike will have to stay alert. No ordinary Starbucks will do, it’s time to pull out a six-pack of Red Bull.

More than ever before, asset allocation and diversification will be the ingredients of successful investing. Based on his predictions, exposure to consumer discretionaries and industrials should be limited and combined with an increased allocation to utilities, consumer staples and perhaps health care (depending on the outcome of future health-care reforms). Commodities from the agricultural and energy sector will provide returns uncorrelated to the U.S. stock market.

Investors who value this input will be glad to know that PIMCO wants to enter the ETF marketplace. The first PIMCO bond ETFs will likely follow third-party passive or quantitative benchmarks.

(Note: Gross specifically addressed his newsletter to Barack Obama, whom he thinks will be the next U.S. President.)