Bill Gross

[-dol-]

Guess he loaded up and is licking his lips now in anticipation...

If the Fed is paying a good enough price, it would be a good idea for those with too much US$ debt for comfort to unload it to them.

Temasek/GIC, are you ready???

[winston]

Gross: Forget About Double-Digit Returns

Investors looking for double-digit returns from their holdings are going to have to learn to live in a different world for the next several years, bond kingpin Bill Gross said.

Those types of gains, particularly in stocks and real estate, will not return on a broad basis until the recession ends and the government can reflate the economy, Gross, head of the Pimco bond fund, told CNBC.

[millionairemind]

Investment Outlook
Bill Gross | May 2009
2 + 2 = 4

A photograph of Bernard Baruch looms ominously on the far corner of my PIMCO office wall. Vested, with pocket watch and protruding chin thrust prominently toward the observer, this well-known financier of the early 20th century at times appears almost alive. It was Baruch who almost schizophrenically cautioned investors during the stock market’s speculative blow-off in the late 20s that “two plus two equals four and no one has ever invented a way of getting something for nothing.” Three years later during the depths of economic and financial gloom he opined just the opposite: “Two plus two still equals four,” he said, “and you can’t keep mankind down for long.” Homo sapiens, as it turns out, stayed on the deck for much longer than Baruch envisioned – some historians having suggested that it was only war and not the rejuvenating economic spirits of a capitalistic peace that eventually turned the tide – but his words, first of caution and then of optimism, typify the way that fortunes were, and still are, made in the financial markets: Get your facts straight, apply them to the current valuation of the market, take decisive action, and then hold on for dear life as the mob hopefully comes to the same conclusion a little way down the road.

I stare into Baruch’s eyes almost every day – not that we are simpatico or kindred spirits of any sort – but when I do, it’s as if I can hear him almost whispering to me over the portals of time: “Two plus two,” he commands, “two plus two, two plus two.” The message – fortunately, I suppose – ends there. If you thought I was receiving market calls from the ghost of Bernard Baruch I suspect PIMCO would have far fewer clients than we do today. But his lesson nonetheless remains clear: separate reality from exuberance either on the up or the downside and you have the ingredients for a successful market strategy.

Through my years here at PIMCO there have been numerous demarcation points where Baruch’s whispers almost turned into screams. Two plus two screamed four in September of 1981 with long-term Treasury yields approaching 15%, and two plus two boomed four in 2000 when the Dot Coms rose to prices that discounted the hereafter instead of the next 30 years. Similarly, 2007 was a screaming mimi with the subprimes – if only because the liar loans and no-money-down financing were reminiscent of a shell game, Ponzi scheme, or some other type of wizardry that was bound to lead to tears.

2009 is a similar demarcation point because it represents the beginning of government policy counterpunching, a period when the public with government as its proxy decided that private market, laissez-faire, free market capitalism was history and that a “private/public” partnership yet to gestate and evolve would be the model for years to come. If one had any doubts, a quick, even cursory summary of President Obama’s comments announcing Chrysler’s bankruptcy filing would suffice. “I stand with Chrysler’s employees and their families and communities. I stand with millions of Americans who want to buy Chrysler cars (sic). I do not stand…with a group of investment firms and hedge funds who decided to hold out for the prospect of an unjustified taxpayer-funded bailout.” If the cannons fired at Ft. Sumter marked the beginning of the war against the Union, then clearly these words marked the beginning of a war against publically perceived financial terror.

Make no mistake, PIMCO had no dog in this fight, and has infinitesimally small holdings of GM bonds as well. In turn, the rebalancing of wealth from the rich to the “not so rich” is a long overdue reversal, one that I have encouraged in these Outlooks for at least the past several years. But promoting and siding with the majority of the American public in their quest for change does not mean that as investors, we at PIMCO stand star-struck like a deer in front of the onrushing headlights, doing nothing to protect clients. Our task is to identify secular transitions and to preserve and protect capital if indeed it is threatened. Now appears to be one of those moments.

The threat, of course, falls under the broad umbrella of “burden sharing” and is a difficult one to interpret and anticipate, if only because the concept is evolving in the minds of policymakers as well. But clearly, as this financial crisis has morphed from Bear Stearns to FNMA, Lehman Brothers, AIG and now Chrysler, the claims of stockholders and in some cases senior debt holders have suffered. Please hear me on this. That is the way it should be. Capitalism is about risk taking and if you’re not a risk taker, you should have your money in the bank, Treasury bills, or a savings bond, not the levered investment of a bank or an aging automobile company. Let there be no company too big, too important, or too well-connected to fail as long as the systemic health of the economy is not threatened.

Having acknowledged that, however, let me be clear that these risks, long swept under the rug of prior Administrations, are now rising to a boil. The pressure to “survive well” or simply survive period is now clearly shifting to Wall Street as opposed to Main Street. The worm has turned, and our President, whom I voted for and still strongly support, has shed his predecessor’s regal robes for a populist’s cloak.

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.

William H. Gross
Managing Director

[winston]

Pimco's Gross sees modest goals in slow recovery By Ross Kerber

CHICAGO (Reuters) - Top bond-fund manager Bill Gross warned of a slow U.S. recovery in coming years and said investors would do best aiming for modest returns.

The unfolding economic recovery now amounts to "green shoots, but not much more," Gross, co-chief investment officer of bond giant Pacific Investment Management Co, said in an interview at an investment conference in Chicago.

Gross forecasts the U.S. economy will grow a paltry 1 percent to 2 percent annually over the next few years, with stubbornly high unemployment.

In this environment, Gross said, investors should "think stable income." Gross said he favors high-quality corporate bonds that yield 6 to 8 percent. "That's where you should go ... reaching for returns won't be rewarded like it was."

Gross said some stocks would fit the same description. He cited Coca-Cola Co and Procter & Gamble Co as attractive stocks.

"Growth will be subdued," he said in luncheon remarks on Thursday at a conference hosted by Chicago research firm Morningstar Inc. He also forecast unemployment between 7 to 8 percent for years to come. "We won't be able to put all these people back to work."

The U.S. recession has already cost over 5 million jobs since it began in December 2007 and the unemployment rate hit 8.9 percent in April, the highest since September 1983.

Gross manages the Pimco Total Return Fund, which has $150 billion in assets and was the top-selling fund in April, according to recent data from Financial Research Corp. The fund took in $3.9 billion in assets in that month.

The fund is up 2.8 percent through May 27, according to Morningstar data, 0.8 percent better than its peers.

Gross attributed a slide in the U.S. government bond market on Wednesday to fears there would not be enough buyers for the $3 trillion in recent U.S. borrowing.

"There's a gap because the market is worried who's buying these" securities, he said.

U.S. Treasuries recovered on Thursday as dealers wondered whether the selling was overdone given that much of the downward move came on the back of mortgage-related trades.

Asked about inflation, Gross said he doesn't foresee it as a factor for the next few years. "There's so much excess capacity" such as idle factories and laid-off workers, which will hold back price increases.

According to its most recent update on its website, mortgage securities make up the biggest share of the holdings of his Pimco Total Return Fund: 64 percent. Gross reduced his holdings of U.S. government securities slightly in April to 26 percent.

Pimco, the world's biggest bond fund manager, is a unit of Allianz SE.

[winston]

Gross: Debt Onslaught Boosting Bond Yields By: Dan Weil

Superstar bond fund manager Bill Gross says the raft of debt being issued by the U.S. Treasury is pushing bond yields higher.

The 10-year Treasury note rose to a six-month high of 3.75 percent Wednesday amid concern about the $2 trillion of debt that the Treasury will sell to the bond market this year.

The money is needed to finance the government's budget deficit. The Congressional Budget Office estimates the deficit will total $1.7 trillion in fiscal 2009, ending Sept. 30.

"The Treasury is issuing a lot of money," Gross, co-chief investment officer of PIMCO, told Bloomberg. "The market is beginning to wonder who is going to be buying these bonds."

Like many other experts, Gross is concerned that the rising U.S. debt burden will send inflation surging higher.

"There's becoming an embedded inflationary premium in the bond market that wasn't there six months ago," he says.

Inflation may accelerate to 3 percent or 4 percent in three years, Gross says. The consumer price index fell 0.7 percent in the year through April.

The Federal Reserve has indicated it prefers an inflation range of 1.7 percent to 2 percent.

For weeks, Gross has been saying that U.S. Treasuries are overvalued. Many experts agree.

"Given the extent of the supply that Treasury will be issuing, that will probably limit the ability to see a longer-term downturn in yields," John Canavan, a fixed-income analyst at Stone & McCarthy Research Associates, tells Marketwatch.

© 2009 Newsmax.

http://moneynews.newsmax.com/streettalk ... 19448.html

[winston]

Bill Gross: Who Will Buy All This Debt? By: Julie Crawshaw

The U.S. annual deficit of nearly $1.5 trillion is 10 percent of its gross domestic product — a number never approached since the Great Depression, says PIMCO head Bill Gross.

“The immediate question is who is going to buy all of this debt?” Gross writes in a note to investors.

“It is obvious that the Chinese and other surplus nations cannot fund the deficit even if they were fully on board – which they are not.”

“Someone else has got to write checks for up to $1.5 trillion additional Treasury notes and bonds.”

U.S. policymakers, Gross observes, assure voters and financial markets that a return to fiscal conservatism is just around the recovery’s corner, but it’s tough to see “exactly how that more balanced rabbit can be pulled out of Washington’s hat.”

Gross points out that five more years of 10 percent of GDP deficits will quickly raise America’s debt to GDP level to over 100 percent, a level that both rating services and markets recognize as “a point of no return.”

The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on either one happening, Gross says. Those trillion-dollar deficits are probably here to stay.

China is the world’s largest holder of U.S. Treasuries, with $768 billion of U.S. securities in reserve as of the end of March.

In recent months, however, Beijing has increasingly voiced concerns about the value of its foreign-currency holdings and suggested that the world adopt a new international reserve currency.

© 2009 Newsmax.

http://moneynews.newsmax.com/streettalk ... 21513.html

[mojo_]

Bill Gross: Who Will Buy All This Debt? By: Julie Crawshaw

Gross points out that five more years of 10 percent of GDP deficits will quickly raise America’s debt to GDP level to over 100 percent, a level that both rating services and markets recognize as “a point of no return.”

Does Japan get away with such a high level of gov't budget deficit because it's current account is deep in surplus unlike that of the U.S.

[LenaHuat]

Ah, I think the problem with the US is that both private and now public debt are at dangerous levels.
Unlike the American households, the Japanese households have +net balances in their balance sheets.

[millionairemind]

Investment Outlook
Bill Gross | June 2009
Staying Rich in the New Normal
http://www.pimco.com/LeftNav/Featured+M ... +Gross.htm

[mojo_]

Thanks Lena..

I am searching for the relationship (preferably an equation if such exists) between:
- govt budget status
- current account status
- foreign exchange reserves
- net household balance
so I can see how the parts move with respect to one another and thereby the potential ramifications for the financial mkts