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PIMCO's Bill Gross Commentary |
HenryTo
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 Posted: Wed Apr 04, 2007 12:56 pm Post subject: PIMCO's Bill Gross Commentary |
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April 2007 commentary from Bill Gross:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+April+2007.htm
Along the lines of what I wrote in our weekend commentary. The danger is in overregulation and tighter lending standards for months/years to come, not the current/potential losses from higher resets, etc.
| Quote: | | It will not be loan losses that threaten future economic growth, however, but the tightening of credit conditions that are in part a result of those losses ... Bulls and bears argue over websites as to the percentage of all lending that subprime and alternative mortgage loans provide but while important, the argument obscures the critical conclusion that tighter lending standards and increased regulation will change the housing outlook for some years to come. As past marginal buyers are forced to sell their home to prevent foreclosures, so too will future marginal buyers be restricted from buying them. |
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PIMCO's Bill Gross Commentary Replies |
HenryTo
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| Posted: Wed Mar 03, 2010 2:07 pm Post subject: |
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http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Investment+Outlook+March+2010+Bill+Gross+Dont+Care.htm
| Quote: | This metaphor doesn’t really answer the critical question of whether a debt crisis can be cured by issuing more debt. The answer remains: It depends – on initial debt levels and whether or not private economies can be reinvigorated. But it does suggest the likely direction of sovereign yields IF global policymakers are successful with their rescue efforts: Sovereign yields will narrow in spreads compared to other high-quality alternatives. In other words, sovereign yields will become more credit like. When sovereign issues become more credit-like, as evidenced in Greece, Spain, Portugal, and a host of others, they move closer in yield to the corporate and Agency debt that supposedly rank lower in the hierarchy. That process of course can be accomplished in two ways: high-quality non-sovereigns move down to lower levels or governments move up. The answer to which one depends significantly on future inflation, the aftermath of quantitative easing programs, and the vigor of the private economy going forward. But the contamination of sovereign credit space with past and future bailouts is a leveler, a homogenizer, a negative for those sovereigns that fail to exert necessary discipline. Only if global economies stumble and revisit the recessionary depths of a year ago should the process reverse direction and place Treasuries, Gilts, et al. back in the driver’s seat.
Investors should obviously focus on those sovereigns where fundamentals promise lower credit or inflationary risk. Germany and Canada are amongst those at the top of our list while a rogues’ gallery of the obvious, including Greece, Euroland lookalikes, and the U.K. gather near the bottom. PIMCO’s “Ring of Fire” remains white hot and action, as opposed to xxx blather, is required to maintain or regain trust in sovereign credits approaching the rocks. Just last week Bank of England Governor Mervyn King said that it would be difficult to cut government spending quickly, but that there needs to be a clear plan for doing so. Not good enough, Mr. King. Don’t care. Show investors the money, not vice-versa. An investor’s motto should be, “Don’t trust any government and verify before you invest.” The careful discrimination between sovereign credits is becoming more than casual xxx conversation. A deficiency of global aggregate demand and the potential impotency of policymakers to close the gap are evolving into a life or death outcome for the weakest sovereigns, with consequences for credit and asset markets worldwide. |
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rffrydr
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| Posted: Mon Feb 01, 2010 2:34 pm Post subject: |
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"unlevered emerging economies"...... 
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HenryTo
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| Posted: Mon Feb 01, 2010 1:41 pm Post subject: |
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Beware the ring of fire:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/February+2010+Gross+Ring+of+Fire.htm
| Quote: | Investment management is a privileged profession – not just for being paid by X-times what you’re really worth to society, but from the standpoint of longevity. If you’re good, and you at least give the impression that you still have most of your faculties, you can literally hang around forever. James Carville, the well-meaning but evil-lookin’ guy from the Clinton Administration once remarked that in his next life he’d like to come back as a bond manager. He had part of it right – the influence, the wealth, and even fame – but there was no need to imagine himself as some cryogenically preserved Wall Street version of Ted Williams – he was young enough at the time to make the leap and still have a 20-year career ahead of him. Other professions do not afford such opportunities – the gold watch at 65 is not only symbolic, but a statement in most professions that says you are more or less washed up. Athletes have at most 20 years and musicians seem to have that brief window of creation as well. The Beatles, for instance, were done after a decade’s time. Paul is still writing songs, but the magic clearly disappeared in the 70s and now his concerts are “garden parties” of remembrances as opposed to creation.
What I think is close to unique about investment management is that it’s really about the stewardship of capital markets, and that time weeds out the impostors, leaving the aging survivors to appear as wise and capable of guiding clients through the next crisis – whatever and whenever it might appear. That assumption has some logic behind it, but critically depends on the investor truly enjoying the game and – of course – holding on to at least a few billion brain cells that keeps him from being obviously senile or at least being accused of having “lost it.” An investment manager at 65 fears both. I remember having met John Templeton on the set of Wall Street Week nearly 20 years ago. I was a young buck and he was – well – on the downside of his career. About the only thing he could tell Rukeyser, it seemed to me, was to cite the rule of 72 and proclaim that stocks and the Dow would be at 100,000 by 2030 or something like that. Now, approaching that same age, I’m a little more understanding and a little less young-buckish. If that was his only lesson, then it was a pretty good one I suppose – Dow 5,000 and the New Normal notwithstanding. And despite the strikingly premature departure of Peter Lynch and the transition of George Soros to philanthropic pursuits, there are some great examples of longevity in this business. Warren Buffett, of course, comes immediately to mind, as does Dan Fuss of Loomis Sayles, who may wind up as the Bear Bryant or Adolph Rupp of the bond business. Peter Bernstein, who passed away but a few months ago, was a brilliant writer and commentator on the investment scene well into his 80s. So there’s hope for you still, James Carville, and, I suppose, for me as well. It’s quite a privilege to be a “steward of the capital markets,” to have done it well for so long and to still be able to walk up to the plate and face a 95-mile-an-hour fastball. Or, is it a curve? Time will tell.
.....
Of all of the developed countries, three broad fixed-income observations stand out: 1) given enough liquidity and current yields I would prefer to invest money in Canada. Its conservative banks never did participate in the housing crisis and it moved toward and stayed closer to fiscal balance than any other country, 2) Germany is the safest, most liquid sovereign alternative, although its leadership and the EU’s potential stance toward bailouts of Greece and Ireland must be watched. Think AIG and GMAC and you have a similar comparative predicament, and 3) the U.K. is a must to avoid. Its Gilts are resting on a bed of nitroglycerine. High debt with the potential to devalue its currency present high risks for bond investors. In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 1/2 % and lower.
The last decade – the “aughts” – were remarkable in a number of areas: jobless recoveries in major economies, negative equity returns in U.S. and other developed markets, and of course the financial crisis and its aftermath. If an investment manager and an investment management firm proved to be good stewards of capital markets during the turbulent but vapid “aughts,” they may be granted a license to navigate the rapids of the “teens,” a decade likely to be fed by the melting snows of debt deleveraging, offering life for unlevered emerging and developed economies, but risk and uncertainty for those overfed on a diet of financed-based consumption. Beware the ring of fire! |
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rffrydr
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| Posted: Wed Dec 30, 2009 8:31 pm Post subject: |
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Gross' personal plaything, PHK got played with today. Always get an eye out for the shenanigans. They can make up for a whole cycle of misplaced macroeconomics.
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rffrydr
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| Posted: Tue Oct 27, 2009 2:41 pm Post subject: |
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Hopefully this is just Halloween-speak 'cause it sure is gloomy:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Midnight+Candles+Gross+November.htm
Howard Simons
Depression's Just Another Word For Nothing Left To Goose
10/27/2009 2:58 PM EDT
| Quote: | Tim, as a devotee of such country classics as "You Broke My Heart, So I Busted Your Jaw," I can sympathize with Mr. Gross' lugubrious outlook on life in these United States. I mean, come on, Newport Beach makes Butcher Hollow, KY, look like Shangri-la.
But sometimes you never see things so clearly as when your chin's dragging a trench through the old terra firma. And he sees the end of the line for the most-disbelieved 28 year-long bull market in human history, that for U.S. Treasuries. No more free carry, no more Federal Reserve buying mortgages, no more 0% money (at some point) and no more of those freebies that help you make it through another miserable day managing hundreds of billions of dollars for a fee.
I was rummaging through my files to see who was calling forever for the Federal Reserve to engage in such policies, but as my desk is in a permanent state of disarry, I can't find anything. Maybe someone can refresh my memory as to who was cheerleading these oh-so-depressing policies. |
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HenryTo
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rffrydr
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| Posted: Sun Sep 13, 2009 8:25 am Post subject: |
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Wild Bill is dusting off a new strategy for his leveraged fund (some teeny-tiny part of PIMCO): high yield is becoming "safe":
http://finance.yahoo.com/news/Allianz-Global-Investors-Fund-bw-2789664457.html?x=0&.v=1
It's taken some time for him to come around to the Brazil debt story--the bonds he was forced to buy in the first boom I am sure have surprised him. The best argument down there now is Venezuela: yet soon Lula will get his new socialized oil policy and we'll see how Wall St.'s collective nose holding vis-a-vis Obama matches up to its loving embrace of that defender of the impovrished Lula. (Brazil paying parents to keep kids in school--is that an incentive).
Reading a native report of 40million lost jobs in China this cycle. And with europe leverage far more to CMBS we'll have to see about that dollar plan. It is the dream carry, I'll grant them that.
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HenryTo
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| Posted: Sat Sep 12, 2009 11:38 am Post subject: |
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Gross reiterates the reasons, and the outcomes, of the "New Normal."
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Gross+Sept+On+the+Course+to+a+New+Normal.htm
| Quote: | The investment implications of this New Normal evolution cannot easily be modeled econometrically, quantitatively, or statistically. The applicable word in New Normal is, of course, “new.” The successful investor during this transition will be one with common sense and importantly the powers of intuition, observation, and the willingness to accept uncertain outcomes. As of now, PIMCO observes that the highest probabilities favor the following strategic conclusions:
1) Global policy rates will remain low for extended periods of time.
2) The extent and duration of quantitative easing, term financing and fiscal stimulation efforts are keys to future investment returns across a multitude of asset categories, both domestically and globally.
3) Investors should continue to anticipate and, if necessary, shake hands with government policies, utilizing leverage and/or guarantees to their benefit.
4) Asia and Asian-connected economies (Australia, Brazil) will dominate future global growth.
5) The dollar is vulnerable on a long-term basis. |
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rffrydr
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HenryTo
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| Posted: Sat Aug 01, 2009 12:06 pm Post subject: |
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PIMCO's Bill Gross discusses the political and economic limits for further fiscal and monetary expansion going forward:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Investment+Outlook+August+2009+Gross+Investment+Potion.htm
| Quote: | Now, however, things have changed, and it is apparent that there is massive overcapacity in the U.S. and indeed the global economy. As reflexive delevering has unveiled the ugly stepsister of the “great 5% moderation,” nominal GDP has not only sunk below 5%, but turned at least temporarily negative. If allowed to continue – and this is my critical point – a portion of the U.S. production capacity and labor market will have to be permanently laid off. Nominal GDP has to grow close to 5% in order for the economy’s long-term balance to be maintained. Otherwise, employment levels become unsustainable, retail shopping centers unserviceable, automobile production facilities unprofitable, and the economy itself heads towards a new normal where unemployment averages 8 instead of 5%, housing starts total 1.5 instead of 2 million, and domestic auto sales 12, instead of 16 million annual units. Critically in the readjustment process, debts are haircutted via corporate defaults and home foreclosures, and equity P/Es are cut based upon increased risk and substantially lower growth expectations. A virtuous circle of expansion turns into a vicious cycle of recession or low-growth stagnation. Label it what you will, but a modern capitalistic economy based on levered financing and asset appreciation cannot thrive if its “return on capital” or nominal GDP suffers such a significant shock.
Policymakers/government to the rescue –we hope. 0% interest rates, quantitative easing, $1.5 trillion deficits, trillions more in FDIC or explicit government guarantees, a trillion plus in MBS and Treasury bond purchases, TALF, TARP – I could, but I need not go on. Can they do it? In other words, can they successfully reflate to 5% nominal GDP and recreate an “old” normal economy? Not likely. The substitution of government-backed vs. private-leverage is one strong argument against the possibility. Despite the attractive financing rates incorporated with the TALF, TLGP and other government-subsidized financing programs, they come with quality constraints (larger collateral haircuts and mortgage down payments, to name a few) that inhibit the “new normal” lenders from approaching the standards of the 5% nominal-based shadow banking system. Just last week, President Obama proposed new “transaction fees” for “far out transactions” undertaken by financial companies. “If you guys want to do them,” he said, “put something into the kitty.” In turn, there are internal Washington Beltway/external Main Street USA, politically imposed limits which will thwart policy expansion beyond the current stasis. Most of the politicos and even ordinary citizens are screaming for limits on monetary/fiscal expansion: “No TARP II! 1.5 trillion dollar deficits are enough! The Fed must have an exit plan!” etc. If there are such future political constraints or caps (both domestically and from abroad), then one should recognize that most of the ammunition has been spent stabilizing the financial system, and very little directed towards the real economy in terms of job loss prevention. Where is the political will or wallet now to grant corporate tax breaks for private sector job creation or to even hire new government workers, aside from a minor positive push with military enlistment? In brief, the “new normal” nominal GDP, the future return on our stock of labor and capital investment, will likely be centered closer to 3%, for at least a few years once a recovery is in place beginning in this year’s second half. Diminished capitalistic risk taking and constrained policymaker releveraging will lead to that likely conclusion.
Investment conclusions? A 3% nominal GDP “new normal” means lower profit growth, permanently higher unemployment, capped consumer spending growth rates and an increasing involvement of the government sector, which substantially changes the character of the American capitalistic model. High risk bonds, commercial real estate, and even lower quality municipal bonds may suffer more than cyclical defaults if not government supported. Stock P/Es will rest at lower historical norms, and higher stock prices will ultimately depend on tangible earnings growth in the form of increased dividends, not green shoots hope. An investor should remember that a journey to 3% nominal GDP means default/haircuts for assets on the upper end of the risk spectrum, as well as extremely low yielding returns for government and government-guaranteed assets at the bottom end. There is no investment potion for this new environment other than steady income-producing bond and equity investments in companies with strong balance sheets and high dividend yields, as well as selectively chosen emerging market commitments where nominal GDP growth prospects are tilted upward as opposed to gravitating to new lower norms. Madame Rue has met her match. |
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HenryTo
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| Posted: Tue May 05, 2009 9:41 pm Post subject: |
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PIMCO's Bill Gross discusses the implications of rising populist sentiment and government intervention going forward:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/IO+May+09+Gross+2+2+4.htm
| Quote: | How does one invest during such a transition? Investors should recognize that this grassroots trend signals – most importantly – an increasing uncertainty of cash flows from financial assets. Not only will redistribution and reregulation lead to slower economic growth, but the financial flows from it will be haircutted and “burden shared” by stakeholders. In turn, the present value of those flows should reflect an increasing risk premium and a diminishing multiple of annual receipts. PIMCO’s Paul McCulley, famous for a catchy phrase or a light-bulb-generating truism, asked a group of clients the other day to compare FedEx and UPS to the U.S. Post Office, if it were a public corporation. “Which one would you pay more for?” he asked. If FedEx deserves a P/E of 12, wouldn’t the value of the Post Office be substantially less? His point, and mine as well, is that as wealth is redistributed, and the invisible private hand of Adam Smith begins to resemble more and more the public fist of government, then asset values should be negatively affected. First comes the haircutting and burden sharing, most recently evidenced by Chrysler and soon to be played out via the stress testing and equity dilution of government ownership of ailing banks. In those footsteps, however, will follow a slower rate of economic growth, not just in the U.S., but worldwide as heretofore libertarian capitalism is bridled, saddled and taught to trot instead of gallop over the investment plains.
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. |
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rffrydr
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rffrydr
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| Posted: Sat Apr 04, 2009 9:59 pm Post subject: |
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More on PPIP numbers: this game can only be played by PIMCO and it's table of players. Not much here that resembles the early 20th-Century.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aEDHFtFqc_ko
| Quote: | The plan may reward investors with 20 percent annual returns on “really ‘toxic’” mortgages bought at 45 cents on the dollar by allowing them to borrow six times their money with “non-recourse” government-backed debt, New York-based Credit Suisse Group AG analysts Carl Lantz and Dominic Konstam wrote in a March 27 report. That loan would be worth 15 cents to an investor seeking the same return who can’t use borrowed money.
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You wanna walk us through this one, Master H.?
| Quote: | | ......With recourse loans, the type of “toxic” mortgages identified by the Credit Suisse analysts, which have a hypothetical 40 percent annual default probability and only 10 percent expected recoveries, would be worth only 19.7 cents.... |
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HenryTo
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| Posted: Sat Apr 04, 2009 12:03 pm Post subject: |
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Latest April 2009 commentary from Bill Gross, titled "The Future of Investing":
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Investment+Outlook+April+2009+Evolution+or+Revolution+Bill+Gross.htm
| Quote: | | What then does commonsense tell us about future asset returns? Let’s revisit our previous conclusions on the developing environment for some clues. They include: delevering, deglobalization, reregulation leading to slow global growth, a heightened risk aversion, a distrust of conventional investment model portfolios, and a greater emphasis on surviving as opposed to thriving. If valid, then an investor or an investment committee would likely stress the bird in the hand – as opposed to the one in the bush; stable and secure income – as opposed to uncertain capital gains; a government-regulated utility model – as opposed to innovative yet risky venture capital investments. At current price levels, to cite one example, the current income from corporate bonds is higher and certainly more secure than the dividend income from stocks. A return to an era reminiscent of the first half of the 20th century is not unimaginable where stocks were viewed as subordinated income producers with yields exceeding their senior bond companions on the liability ladder. |
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HenryTo
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