Bill Gross

[winston]

Pimco's Bill Gross: American savers are getting screwed

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said investors may be at a disadvantage for as long as 15 years as the U.S. keeps borrowing rates low to reduce its debt burden.

“Savers are being disadvantaged” when compared with debtors, Gross said during an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “What policy makers are trying to do is rebalance this imbalance, in terms of too much debt and too attractive rates on savings. It’s basically called financial repression. We call it pocket picking.”

Bond holders are being hurt by low policy rates -- a Federal Reserve funds rate at zero to 0.25 percent in the U.S. -- and the increasingly negative real yields they cause as inflation accelerates, which erodes the value of fixed-payments for savers, according to Gross. This is taking place as the government reaps the gains of low rates, which reduce the cost of servicing its debt.

The difference between the yields on Treasury 10-year notes and the rate of inflation, known as the real yield, turned negative this month for the first time since the end of 2008, when Fed policy makers cut interest rates to a record low and embarked on a series of policy measures that peaked with its program of bond buying that has been dubbed quantitative easing, or QE.

Budget Deficit

This year’s federal budget deficit is projected to reach $1.5 trillion, or 9.8 percent of gross domestic product, according to the Congressional Budget Office.

Gross, 67, said investors should seek alternatives to U.S. bonds, including developing or emerging-market debt at higher yields denominated in non-dollar currencies. Canadian and German government debt, as well as U.S. corporate securities, are attractive alternatives, Gross reiterated today.

Cash and equivalents, the largest component of the fund, rose to 37 percent of holdings in April from 31 percent. Mortgage bonds declined to 24 percent from 28 percent, the Newport Beach, California-based company said on its website earlier this month.

Source: Bloomberg

[winston]

Bond king Bill Gross: These investors will soon be "boiling frogs"

Pacific Investment Management Co.'s Bill Gross said investors in U.S. Treasurys are being lulled into a false sense of security by positive returns this year because yields aren't high enough relative to inflation.

Gross, who oversees the world's biggest bond fund, said bond investors face a similar fate as a frog that remains in a pot of water while the temperature is gradually increased until the amphibian is cooked. Inflation erodes the value of the fixed payments of bonds over time.

"Much of the Treasury yield curve now rests in negative territory when compared with expected future inflation, and that should send our bond investors into a hopping funk," Gross wrote in his monthly investment commentary today on Newport Beach, California-based Pimco's website. "Prices are already nearing the boiling point."


Source: Bloomberg

[winston]

Pimco's Bill Gross on Scoping Out Subprime

In 2006, there were signs that this had become a highly leveraged Ponzi economy and that housing was at the pinnacle of this leverage. The temperature of the U.S. housing market was always best read here in Orange County [Calif].

But one day that August, as I was going across the street for my daily yoga exercise, it occurred to me that we needed to get a feel for the rest of the country.

We had 40 credit analysts covering companies like IBM (IBM) and General Motors (GM). I thought: Why not take 10 of these people and turn them into pretend real estate buyers? Instead of sending them to Armonk to interview the treasurer of IBM, let's send them to places like Detroit, Miami, or Vegas to pretend to be in the market to buy a house.

They didn't have a bankroll, and they obviously weren't going to buy a house. Nonetheless, I gave each of them a territory and told them to go there two or three times a month until June 2008. They were told to be serious buyers, to get serious information.

There was no pushback, but I wondered whether it was kosher. I wasn't necessarily proud of the obvious deception. But this little bit of trickery alerted us to what was really going on: the liar loans and the extravagant lending practices.

We got much better real-time information, and we learned homes were being bought without a down payment or without documents to prove income. The extent of the lending malpractice—to use a nice word—was shocking, and it caused us to stay out of the subprime market.

Timing is everything, though. It wasn't easy for quite a while: There was a stretch of nine to 12 months pre-Lehman where we were underperforming, and there was a lot of internal questioning and debate. Maybe we should jump in the pool with everyone else. Every investor has an alarm clock. I wish I could get up at 6 every morning and time things just right.

I probably get up at 4:30. There's a cost to that hour and a half, where you sit around the table and acknowledge your competitors are having your lunch. But it's better than getting up too late.

http://www.businessweek.com/magazine/co ... 751068.htm

[iam802]

Bill Gross on Debt Ceiling: Lawmakers ‘Don’t Get’ the Implications

http://blogs.wsj.com/deals/2011/07/15/b ... od=WSJBlog

Add Pimco’s Bill Gross to the list of people weighing in on the debt ceiling standoff.

“What they really do not get are the implications going forward,” Gross said on Bloomberg Television. “The U.S. has a $60 trillion net present value liability burden and that constitutes Medicare, Medicaid and Social Security in combination. That is 4-5 times GDP and it certainly exceeds those liabilities in Greece, Portugal and Spain. Ultimately, the U.S. has a big, big problem. What needs to be done, as Chairman Bernanke suggested yesterday, is that we need to approach it very gradually. You cannot cut two or three trillion dollars of spending over a year or two and expect the economy to survive.”

Gross also said that he doesn’t expect QE3, and that “Europe lacks the political leadership to cure the crisis.”

Video of interview
http://www.youtube.com/watch?v=yV-FIplT ... r_embedded

[iam802]

Bill Gross spoke to Bloomberg about the debt-ceiling debate and the U.S. economy. Gross said that the debt-ceiling deal is a “Republican Tea Party victory” and that “we are at a tipping point” in terms of a recession.

http://wallstcheatsheet.com/stocks/bill ... ties.html/

...

Gross on the debt-ceiling deal what we should be paying attention to:

“Very few people have focused on liabilities over the longer term. We have a $10-12 trillion debt, but basically, we also have $60 trillion present costs in terms of future liabilities. We are talking about Medicare, Medicaid and Social Security. I call those debt-men walking. That means in addition to paper, we have 330 million people who are walking around as future liabilities for this country. To the extent that we have promised them entitlements through health-care and Social Security, that total is $60 trillion, six times the existing debt. We have a whale of a program to go, not just in terms of this particular targeted program, but in terms of forward years, where $1trillion to $2 trillion has to come from the budget every year in order to maintain the semblance of a AAA country.”

On whether the U.S. can get to a balanced approach:

“It does seem like lawmakers can’t get to it and whether they will in November and beyond is a critical question. To our way of thinking, tax hikes have to be part of the equation, tax hikes for the billionaires and for the hedge funds in terms of carried interest, but we’re talking about corporations as well. Corporations have the lowest tax rate on a historical basis. 10% of GDP that they’ve had over the past century. Those that would suggest that corporations won’t invest unless their taxes are reduced are sadly mistaken. It needs to be a balanced approach and it needs to be significant.”

On whether he is disappointment by President Obama’s role in the debt-ceiling talks in that he didn’t push further with Republicans and Conservatives:

“I think so. He had his chance long ago when he could have threatened to raise the debt-ceiling come hell or high water, come 14th Amendment or high water. This was not the case in terms of him following through. I am disappointed. I think there have to be tax increases. That was his main premise. He didn’t enforce that. To me, it’s a Republican Tea Party victory. Whether they can continue that momentum in 2012, we will have to see in terms of the elections.”

On how the markets would have reacted if we had gotten more significant spending cuts and tax increases:

“Probably not much differently. The markets, and you can take Pimco as an example, are very skeptical in terms of any plan… In any case, the markets are skeptical of what government can in this particular situation. It is true, from our standpoint, although we are recommending that there is a long way to go in terms of reducing deficits, that when you do it in the short run, as the Tea Party would not recognize, that’s very fiscally contractionary. Within the next year or two, the U.S. government even under this guise of this particular plan will be fiscally contractionary to the extent of 0.5% to 1.5% of GDP. That suggests that the private sector has to come in and fill the breach and we do not think they are going to do that.”

On Paul Krugman’s argument that this is not the time for spending cuts:

“I think even Krugman would agree that up until this point the stimulus programs have been misguided. They have promoted consumption and basically Chinese production as opposed to U.S. production. Future programs, if there are going to be future programs from the standpoint of fiscal stimulus, will have to be directed at jobs and promote infrastructure, green and technologically advanced programs so that we can export something to the global economy. At the moment, we basically only import something from the global economy and that’s one of the problems we have.”

On whether Pimco is banking on another recession:

“Not yet. We are talking about it in an investment committee. Our numbers for the second half are 1% to 2% in terms of real GDP growth. They were 2% to 3%. We have reduced that based on recent statistics. We are not looking at another recession yet, but we are at a tipping point. We are at what we call a stall speed in which corporate profits don’t grow, jobs aren’t created. Therefore the economy sinks based on a stall speed concept in terms of airplanes.”

On whether the Federal Reserve should do more:

“The Fed is in the business of providing emergency liquidity and reducing the cost of credit. They’ve done a lot of that. The 5-Year is at 1.2%. They 10-Year is at 2.65%. They can do additional things. They have suggested that. They will talk about it next week and they’ll talk about it at Jackson Hole.There is the potential for a QE3. I suggest that that takes the form really of extended period language and some kind of cap in the 5-Year or 10-Year treasury securities, lowering the cost of credit even more. They are approaching a cul-de-sac, a dead-end, where all they can do has been done.”

On Gross’ monthly investment outlook issued today and whether he is continuing to look outside the U.S.:

“You want non-dollar based. As interest rates come down in the U.S. that basically suggests that the dollar is a less and less attractive investment. You want countries with cleaner dirty shirts: Germany, Canada, Mexico (NYSE:EWW), Brazil (NYSE:EWZ) with interest rates at 2%, 3%, 4%, 5%, 6%. That’s on the bond side. You want to look for commodities (NYSE:RJI) which benefit with a declining dollar (NYSE:UDN). You want to look for global stocks that pay a consistent 3%+ type of dividend relative to the dramatically low interest rates we have in the U.S.”

On U.S. Treasuries:

“The call on U.S. Treasuries (NYSE:TLT) was always that there was something better. We’ve benefited from Germany (NYSE:EWG) and Canada (NYSE:EWG). We are doing quite well in terms of the Total Return Fund - it’s up about 5%. Treasuries can do what they do but we are in the cleaner dirty shirt types of countries.
“We have a small percentage of U.S. Treasuries. The Total Return portfolio has about a 9% concentration in U.S. Treasuries and that’s up a little from last month. Those numbers will come out in the next few days and I hope I haven’t disturbed our legal people.”


....

[LenaHuat]

You want to look for commodities (NYSE:RJI) which benefit with a declining dollar (NYSE:UDN). You want to look for global stocks that pay a consistent 3%+ type of dividend relative to the dramatically low interest rates we have in the U.S.”

This is the most important takeaway.

[iam802]

PIMCO: Treasuries reflect likelihood of recession

http://www.reuters.com/article/2011/08/ ... 6W20110819

(Reuters) - Bill Gross, manager of the world's largest bond fund, said on Friday the decline in Treasury yields to 60-year lows reflect a high probability of recession in the United States.

Gross, the co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion, also told Reuters Insider television the U.S. is running out of monetary and fiscal policy options.

"It is increasingly apparent to us that policy options are limited and that economic growth is slowing down," said Gross said.

Thursday, Morgan Stanley warned in a research report the United States and euro zone are "dangerously close to recession," joining a number of firms that have slashed forecasts for global growth in the second half of the year. Not only are economists and investors bracing for a slowdown in the U.S., they are concerned about a deceleration in China's growth rate to persistent sovereign-debt turmoil in Europe.

Morgan Stanley cut its global GDP forecast to 3.9 percent growth from 4.2 percent for 2011, and to 3.8 percent from 4.5 percent for 2012.

"There's no doubt that (U.S.) growth from the standpoint of employment or unemployment and growth from the standpoint of corporate profits is definitely a risk -- whether or not we see a positive 1 percent real GDP number I think is besides the point."

Gross said low Treasury yields are flashing recessionary conditions.

"They certainly reflect, in terms of their yields, not only a potential for a recession but the almost high probability of recession and the result of lowering of inflation -- that is key."

On Thursday, the yield on the benchmark 10-year U.S. Treasury note dropped below 2 percent to 1.98 percent. Friday, the 10-year yield stood around 2.08 percent.

In May, Gross told Reuters the only way he would purchase Treasuries again is if the United States heads into another recession.

Gross, who manages the $245 billion Total Return Fund, reiterated that sentiment on Friday: "I don't think there is any value there unless you see a recession."

[winston]

* Bill Gross, the closely followed manager of PIMCO, the world's largest bond fund, feels like "crying in his beer". for betting so heavily against U.S. government-related debt earlier this year, the Financial Times reported.

Source: Reuters

[kennynah]

isn't he very popular with investors, who hail him as a financial guru?

[winston]

Yes, and they have been playing follow the leader ....