Bill Gross: Buy Early What the Government Buys Later 26 comments
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Bill Gross, in his latest PIMCO 'Investment Outlook' (1/09):
...future policymakers must confront the reality that is, not the one that should have been. And investors must do likewise, casting aside personal philosophies for a clear-headed view of the future horizon. PIMCO’s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks, and senior bank debt; Aaa asset-backed securities such as credit card, student loan, and auto receivables. These have been well-advertised PIMCO strategies over the past 6 months but there are others in clear sight. An Obama administration will quickly be confronted by the need to provide those hundreds of billions of dollars to states and large municipalities. Their requests total nearly a trillion dollars and to think California or NYC would be allowed to fail is, well – unthinkable. Municipal bonds then, selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2½% 10-year Treasury cannot.
Here’s another thought. While TIPS or inflation-protected securities cannot logically be a recipient of Uncle Sam’s checkbook over the next 12 months, they can benefit if and when the government’s efforts to reflate begin to take hold. 2½% real yields cannot possibly be maintained unless deflation as opposed to inflation becomes the odds-on favorite. What bond investors know as “breakeven inflation rates” are currently signaling a future where the U.S. CPI averages -1% for the next 10 years. Possible, but not likely. As an additional strategy, global bond investors should recognize the value in high-quality investment-grade corporate bonds in many markets. Yields of 6%+ for intermediate maturities are still common and readily available.
There is legitimate concern as to the ultimate destination and outcome of our “bailout nation.” Realistically, quantitative easing, a two-trillion-dollar expansion of the Fed’s balance sheet, and the near certainty of future budget deficits approaching 6-7% of GDP should alert bond investors to once again become vigilant as was the case in the 1980s and 90s. Vigilantes we should be, but that is a battle to be fought in the Treasury market where low yields offer little reward and increasing risk. For now, our Ponzi-style economy and its policy remedies encourage bond investors to mimic Uncle Sam and its global compatriots. Buy what they buy, but get there first.
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This article has 26 comments:
I am not happy with how our government has morphed into fascist/feudalism. Our republic will right itself over time, pain being the catalyst and the citizenship ultimately doing the heavy lifting in that regard. Emotional investing kills and while I find investing into narrow boxes on what Washington does morally repugnant, however I have fudiciary responsibilty to the companies I own, investors, employees and my family.
I am in the Consumer Health market for a reason. I also own a company in Higher Ed as a secondary focus. This mirrors what is going on in Washington on health care reforms and secondary focus on Higher Education. I anticipate seeing the fiscal stimulus package. Can't buy right now without the facts which Mr. Gross should have also included in his article as advice.
seekingalpha.com/artic...
again, Gross just talking up his book, like every other time he opens his mounth, just like El Erian and McCulley --- when they suggest to buy anything, it's because they spent the 2 months prior buying up all they could of said sector.
On Jan 08 10:16 AM jswede wrote:
> it's easy to buy what "they" buy, when you are the one buying for
> them...
>
> again, Gross just talking up his book, like every other time he opens
> his mounth, just like El Erian and McCulley --- when they suggest
> to buy anything, it's because they spent the 2 months prior buying
> up all they could of said sector.
Which is totally fine, who doesn't look at the world without a lifetime of biases, insights, and philosophical bent.
SA is wonderful in that daily you can peruse a wide gamut of opinions, comment back and forth on them yourselves. I don't feel like I'm alone facing this historic seachange, which demands constant vigilance, for we all are or will be facing choices in our lives, some very difficult.
The more tea leaves the better.
On Jan 08 10:16 AM jswede wrote:
> it's easy to buy what "they" buy, when you are the one buying for
> them...
>
> again, Gross just talking up his book, like every other time he opens
> his mounth, just like El Erian and McCulley --- when they suggest
> to buy anything, it's because they spent the 2 months prior buying
> up all they could of said sector.
Do we really need more police, more firemen? We are expecting a great rise in crime and fire? Sadly, I think 90% of all spending will go to unsustainable overhead which will only add to the pain as economies become less efficient than more. A million more paper shufflers does nothing to help anyone.
Maybe I'm just cynical after watching the bank bailout. Hundreds of billions have gone to them with the Fed backing just about every instrument under the sun with no outcome besides a slight move in Vix and the survival of our worst companies in America (Fannie Mae, Freddie Mac, Citibank, AIG, etc.) Can you blame me.
I am nauseated by everyone having anything to do with the financial industry.
On Jan 08 10:20 AM Emerald wrote:
> You are correct in tht Bill Gross is talking the PIMCO book, but
> it's where the yields and profits are now! The credit market has
> to recover before the stock market has any sustained momentum.
www.worldnetdaily.com/...
On Jan 08 11:30 AM constructe wrote:
> It is sad watching the market become dependent on government pandering
> and givaways. I agree spending some on construction and better and
> faster tech infrastructure. A few billion.
>
> Do we really need more police, more firemen? We are expecting a great
> rise in crime and fire? Sadly, I think 90% of all spending will go
> to unsustainable overhead which will only add to the pain as economies
> become less efficient than more. A million more paper shufflers does
> nothing to help anyone.
>
> Maybe I'm just cynical after watching the bank bailout. Hundreds
> of billions have gone to them with the Fed backing just about every
> instrument under the sun with no outcome besides a slight move in
> Vix and the survival of our worst companies in America (Fannie Mae,
> Freddie Mac, Citibank, AIG, etc.) Can you blame me.
Bill Gross' lesson should worry everyone who believes in markets. Once your investment decisions move from "what's a good company?" to "what is the Government going to buy next?" the nation and the markets have crossed a dangerous line.
Consider doing business in Putin's Russia. It is possible to make money, sure . . . but the key determining factor isn't "how good a business is this?" its "what does the Government think about it?"
If we truly have a "Ponzi-style" economy, why would Bill Gross think he could come out ahead investing in bonds at 6%? The sheet will hit the fan when investors in sovereign debt are exhausted, yields are driven up, and the amount of $ raised in debt auctions is insufficient. We have already seen this with rising risk spreads in developing countries' debt, and now investors are refusing to buy debt from developed countries with stable currencies like Greece and Italy.
How long until that happens here, with our exponentially expanding national debt? What will Bill's bonds bought at 6% yields be worth when the treasuries again yield double-digits against double-digit inflation? How does this strategy protect someone from a Russia/Argentina/Icela... style currency devaluation? How does it protect an investor from rising future rates that will cut the value out of bonds purchased now?
On Jan 08 11:14 AM AndrewBaker wrote:
> I agree with Bill. The whole world has been in a Ponzi state for
> many years, and now the reckoning is coming because you can't run
> these schemes indefinitely 'cos you run out of punters to take the
> money from. We've done that now, and Governments are printing the
> monopoly money whilst we all get used to being as poor as we really
> are but didn't know it. So ... the best game in town is buy what
> the government will buy or not let go down. And do it internationally:
> this game is worldwide.
Firefighters are a different story. Will we see an uptick in arsons as desperate small business owners torch their own storefronts to collect a fraudulent payout?
I agree with you that too much overhead is baked in to the speding plan. The stated intent was that 80% of the new jobs created will be in the private sector, so the other 20% will of course be government jobs.
On Jan 08 11:30 AM constructe wrote:
> It is sad watching the market become dependent on government pandering
> and givaways. I agree spending some on construction and better and
> faster tech infrastructure. A few billion.
>
> Do we really need more police, more firemen? We are expecting a great
> rise in crime and fire? Sadly, I think 90% of all spending will go
> to unsustainable overhead which will only add to the pain as economies
> become less efficient than more. A million more paper shufflers does
> nothing to help anyone.
>
> Maybe I'm just cynical after watching the bank bailout. Hundreds
> of billions have gone to them with the Fed backing just about every
> instrument under the sun with no outcome besides a slight move in
> Vix and the survival of our worst companies in America (Fannie Mae,
> Freddie Mac, Citibank, AIG, etc.) Can you blame me.
On Jan 08 10:55 AM Jolly_Rancher wrote:
> The proposal is to profit from government. I am sure that these same
> "investors" propose lower taxes and reduced transfer payments to
> the poor. Looks like greed and hypocrasy.
On Jan 08 11:52 AM Top Gun wrote:
> Ponzi being absorbed by Fed using guarantees from us. Hope these
> are disgourged back into the private market quickly, hopefully right
> after all the mortgages are refinanced and by early 2010. A lot will
> be swapping of bad loans for low interest good loans, there is some
> hopehere.
>
> I am nauseated by everyone having anything to do with the financial
> industry.
On Jan 08 11:55 AM Ricard wrote:
> Bill Gross directly manages the PIMCO Total Return fund, PTTDX (no
> load). Suffice to say he's been one of the few out there who called
> this one right. He bought fannie/freddie products right before they
> were explicitly guaranteed by the government and made a mint...looks
> like he's advocating the same strategy for other asset classes as
> well.
That's because Billy is selling assets (government debt) that he understands will be lowered soon by rating agencies.
I am not selling yet even if I missed the latest price collapse it is still too early for my knock down punch, I must see the reverse of this selling which is made to bring more weak hands in so later to take em all out on the short mega margin call squeeze.
Sell 30Y bonds at 144$.
Ponzi style economy yes and you're saying go against the inevitable collapse and buy what? You've already beaten us to it!
There is no value added with his strategy, it takes advantage of a country that can ill afford to be foolish with its remaining capital and graphically demonstrates the opportunism mindset. Hey Mr. Gross how about GM bonds? They're too big to fail too and the spreads between treasuries you could drive a truck through (just not a GM truck because it's made so crapilly it wouldn't survive the trip.)
I hope I live to see the day, when the government reverses their course and goes after these jackles with confiscitory tax schemes and relegates them to the dark corners where vermin belong.
Methuselah couldn't live that long. The "government" is a pack of 30,000 bureaocrats controlled by 535 bribe-takers. I don't want them to have to power to go after anybody.
Bill Gross has a "partnership" with the government, meaning that he will pay them off to back his junk. When he says, ..."investors must do likewise, casting aside personal philosophies...", what he is saying is to toss your ethics and pay the congressman off.
What is the difference between the USA and Russia, if both nations are controlled by an oligarchy of the wealthy?
I own some notes that will probably soon be backed by the taxpayer. I guess that makes me part of the scheme. I feel dirty.
GMs run badly long after other makes stop running at all.
But I digress.