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.

‘Bubbles Everywhere’

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.


The New York Times


May 18, 2013

Le Grand Jerry Lewis


CANNES, France — EVERY year the organizers of the Cannes Film Festival choose to recognize one towering figure in cinema. This year, they are paying homage to Jerry Lewis with a special screening of “Max Rose,” the latest film for the 87-year-old American. In it, he plays an aging jazz pianist.
For 12 days, 20 or so films compete for the Palme d’Or, arguably the greatest accolade in cinema. Roman Polanski, the Coen brothers, Paolo Sorrentino, Steven Soderbergh, Jia Zhangke, François Ozon and James Gray are among this year’s contenders. The festival, which started on Wednesday and ends May 26, won’t give Jerry Lewis a statuette to go home with; it never does, and doesn’t have to. Next Thursday, Cannes will simply reaffirm the genius of Jerry Lewis to the world.
Critics in France have always been infatuated with Mr. Lewis, who has been far less adored in his own country. Funny thing is, the French always seem surprised when it is suggested that their love is not universally shared. “That Americans can’t see Jerry Lewis’s genius is bewildering,” N. T. Binh, a critic for the French film magazine Positif, stuttered last week, as he stood in front of me while waiting to get into the screening of “The Bling Ring,” directed by Sofia Coppola.
Mr. Lewis rose to stardom alongside Dean Martin between 1946 and 1956. In 10 years, they made 17 films together, from “My Friend Irma” to “Hollywood or Bust,” and were the world’s top box office earners. In 1949, the New York Times critic Bosley Crowther seemed slightly puzzled by this “new mad comedian,” “his idiocy,” “the harrowing features of his face” and “the squeak of his vocal protestations.” From 1956, Mr. Lewis went solo, writing, directing, acting and producing in a multiyear contract for Paramount and then for Columbia. Among the titles treasured by the French critics were “The Bellboy,” “The Nutty Professor” and “Three on a Couch,” but also later films like Martin Scorsese’s “The King of Comedy.”
The French passion for Mr. Lewis was even the subject of a book by Rae Beth Gordon, published in 2001 by Stanford University Press and called, naturally, “Why the French Love Jerry Lewis.”
To understand the genius of Mr. Lewis in the eyes of the French, one needs to go back to the infancy of cinema, before World War I. The French were big producers of silent films, most of them comedies.
What the French love in Jerry Lewis, the actor, writer and director, is his multifaceted moi, the meta-narrative and his extreme velocity, as exemplified in French silent films. He took them back to their cinema history.
Think George Méliès and you’ll have understood Mr. Lewis’s enduring appeal with the French. Mr. Méliès, a one-man band to whom Mr. Scorsese dedicated a film in 2011 (“Hugo”) and who liked nothing more than to mutate into new characters, shared with Mr. Lewis a taste for split personalities, otherness and hysteria. In many films, including “The Nutty Professor” and “The Family Jewels,” Mr. Lewis played multiple parts.
In front of a grimacing Lewis, the French feel awe, while Americans are more likely to shift uncomfortably in their seats. The Australian screenwriter Shane Danielsen told me last week in Cannes that “Lewis’s humor — physical, gestural, a kind of exaggerated grotesque — transcends linguistic barriers in the same way as does Buster Keaton.”
Anglophones feel faintly embarrassed by it, I think, because they feel a guilty sense of ownership — and therefore complicity. But for the French, its nonverbal, farceur quality is something they can hook into much more easily than, say, the parched irony of a Bill Murray or the specifically British despair of a Tony Hancock.
Most Americans don’t realize that for the French, Mr. Lewis represents an American archetype, a handsome clown and histrionic child. The American film director Jonathan Nossiter told me, “It’s very comforting for them to believe that an American genius, by necessity, is monstrously puerile in front of the camera and an idiot savant behind it.” Mr. Lewis also offers complexity and powerful combinations of opposites: he is both a child throwing tantrums and an auteur creating a world of his own. He was a handsome man who kept wanting to play the ugly guy, first beside his sidekick Dean Martin, and then afterward in his solo career. He has also been a depressive clown, à la Buster Keaton and Jacques Tati.
Jerry Lewis is an auteur the way François Truffaut defined it. Thierry Frémaux, the director of the Cannes Film Festival, who presides over the selection of films and the choice of homages, told me: “Jerry Lewis invented a singular style, uniquely staged and choreographed. In fact, when America was celebrating the showman, the comedian, France was recognizing the artist with a unique voice and eye.” He was a hysterical and wondrous child that France would have loved to call her own.
Agnès C. Poirier is a cultural critic based in London and Paris.