Pimco's Gross: Bond Rally End Unlikely to Be Reminiscent of 1994
Thursday, 16 May 2013 03:00 PM
Pacific Investment Management Co.’s Bill Gross said the end of the 30-year rally in U.S. bonds is unlikely to be reminiscent of the drop in 1994, when the Federal Reserve raised interest rates more than forecast.
Markets are entering “a 12-month period of time ahead in which, combined, Treasury, corporate and high yields don’t move much,” Gross, co-founder and co-chief investment officer of Newport Beach, California-based Pimco, said in a Bloomberg Television interview with Erik Schatzker and Sara Eisen.
The manager of the world’s biggest bond fund said last week that the bull market for bonds probably ended at the end of April as yields reached a low and prices peaked. Gross, who was named fixed-income manager of the decade in January 2010 by Morningstar Inc., said May 10 that fixed-income returns will probably be in the range of 2 percent to 3 percent.
U.S. Treasurys lost 3.35 percent in 1994 as then-Fed Chairman Alan Greenspan surprised the market by doubling benchmark lending rates to 6 percent in 12 months.
“The Fed doesn’t dare move in 200-basis-point increments,” Gross said. “Perhaps 25 in 2016. That type of market in our way of thinking is not in store for us.”
The Fed has sought to drive down unemployment by keeping its target rate for overnight loans between banks between zero and 0.25 percent since December 2008 and purchasing securities in monetary policy known as quantitative easing. The Bank of Japan has pledged to double monthly bond purchases and buy longer-term debt to reach a 2 percent annual inflation goal.
Most Fed officials don’t anticipate raising the benchmark rate until 2015, according to their estimates provided with forecasts released after their March 19-20 meeting.
“We see bubbles everywhere,” Gross said. “As long as the Fed, and the Bank of Japan and other central banks keep writing checks and don’t withdraw, then the bubble can be supported.”
The yield on Bank of America Merrill Lynch’s U.S. Broad Market Index, which includes Treasurys, corporate debt and mortgage bonds, fell below 1.58 percent on April 29. Yields on 10-year U.S. Treasury notes fell to 1.61 percent on May 1, the least since December. The yield dropped to a record low of 1.38 percent in July 2012 and declined about 6 basis points, or 0.06 percentage point, to 1.88 percent.
Treasurys posted an annual loss of 3.35 percent in 1994, the worst performance until the 3.72 percent drop in 2009, according to Bank of America Merrill Lynch’s Treasury Master index. The index is down 0.3 percent this year.
The $292.9 billion Total Return Fund managed by Gross returned 6.3 percent over the past year, beating 90 percent of its peers, according to data compiled by Bloomberg. It has lost 0.4 percent in the past month.
Pimco, a unit of the Munich-based insurer Allianz SE, managed $2.04 trillion in assets as of March 31.
© Copyright 2013 Bloomberg News. All rights reserved.
Gold: A Little Lower, And Then A Rally
May 19 2013, 07:02
Many have been quite surprised by the demand for gold in India of late. In fact, gold and silver imports into India in April more than doubled the amount from a year earlier. So, why did gold fall this past week?
Well, in very simple terms, sentiment is not yet ripe for the rally to take hold, but we are getting much, much closer. However, I am still unconvinced that it will be more than a corrective rally, as my primary expectation of a bottom sometime in the summer or fall.
As I discussed in my most recent silver article, it seems that many are now coming to the realization that QE will not drive metals prices higher. In my silver article, I pointed towards John Wagner's recent gold article noting the same. But also explained why I feel that most market participants inappropriately look towards the fundamental factors they deem important for gold to rise, but without the appropriate sentiment structure being in place, it will all be meaningless.
Ultimately, most market participants view markets within the Newtonian framework. Until the times of R.N. Elliott, the world applied the Newtonian laws of physics as the primary analysis tool for the financial markets. Basically, these laws provide that movement in the market was caused by outside forces.
Newton formulated his laws of external causality into his three laws of motion: 1 - a body at rest remains at rest unless acted upon by an external force; 2 - a body in motion remains in motion in a straight line unless acted upon by an external force; and 3 - for every action, there is an equal and opposite reaction.
So, the common belief was, and, unfortunately still is, that a stock or commodity will remain in motion in a straight line, unless something acts upon it, like news or earnings, to change its direction.
However, as Einstein stated: "During the second half of the nineteenth century new and revolutionary ideas were introduced into physics; they opened the way to a new philosophical view, differing from the mechanical one."
However, even though physics has moved away from the Newtonian mechanical viewpoint, sadly, our financial market analysis has not. In fact, how often do you see good earnings come out for a stock, yet the stock tanks? Well, we justify it by saying that they "sold the news." But, it then leaves you with the reasonable question as to how do you know if good news will cause a good reaction in a stock or a "sell the news" event?
As we all know, most market participants are looking for the next piece of news that is supposedly going to move the market. So, when they hear a positive news event being reported, they automatically assume that the market will respond positively. But, we have all seen markets sell off on positive news. And it has had many market participants scratching their heads in disbelief, and, it unfortunately causes losses in their trading accounts.
In fact, I can no longer count how many times I have heard fundamental analysts claiming that a market rally or decline just does not make sense or is wrong based upon their fundamental analysis. I mean, how many times have we heard analysts state that the market is just not trading based upon fundamentals at this time.
Just the other day, I was listening to a fundamental analyst on CNBC who was actually claiming that, from a fundamental perspective, the transports market was wrong when it has been rallying of late.
But, it never occurs to such analysts that maybe their analysis methodology is wrong. Maybe the markets don't move based upon fundamentals. Think about it, does it really makes sense to use fundamentals to determine market movements if many of these analysts admit that markets don't always trade on the fundamentals? Could there be something else moving markets ALL the time?
As Elliott put it, "In the dark ages, the world was supposed to be flat. We persist in perpetuating similar delusions."
Elliott urged that we move away from such misdirected analysis and view that external events affect the market only insofar as they are interpreted by the market participants. Such interpretation is guided by the prevalent social mood internalized by the investor community as a whole.
Therefore, the important factor to understand is not the social event itself, such as the news, fundamentals, or the earnings, but, rather, the underlying social mood which will provide the "spin" to an understanding of that external event or information.
This is exactly how QE should be viewed. When social mood or sentiment was positive, then the gold market rallied on QE infusions. However, after the market peaked in August of 2011, and sentiment turned negative, and has remained in a negative downtrend, no amount of QE - especially the current QE-Infinity - has been able to change the direction of gold.
This brings me to another point. Many believe that news will cause changes in sentiment. Rather, this is looking at the causation chain backwards. It is the prevalent social mood which causes men to act as they do, which then results in reported news events based upon those actions. So, claiming that those news events will then cause changes in sentiment is circular logic, and clearly wrong. Rather, when sentiment is ready for change in trend, a news event may be the catalyst for the public's action based upon the trend having already changed, but the news itself did not cause the trend change. This is why Elliott said "At best, news is the tardy recognition of forces that have already been at work for some time and is startling only to those unaware of the trend."
So, for those that are looking at the current state of the gold market and thinking that there is simply nothing that is going to change this downward spiral, I will caution you that this downward spiral is just about to end and turn very hard to the upside for a counter-trend rally. But, my primary belief is that it will only be a counter-trend rally, and will likely provide us with one more short set up before this market does turn intermediate term bullish once again.
Le Grand Jerry Lewis
By AGNÈS C. POIRIER
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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