More by the Same Author
2013-06-27 The Tipping Point by Bill Gross of PIMCO
I’ve spun a few yarns in recent years about my days as a naval officer; not, thank goodness, tales told by dead men, but certainly echoes from the depths of Davy Jones’ Locker. A few years ago I wrote about the time that our ship (on my watch) was almost cut in half by an auto-piloted tanker at midnight, but never have I divulged the day that the USS Diachenko came within one degree of heeling over during a typhoon in the South China Sea. “Engage emergency ballast,” the Captain roared at yours truly the one and only chief engineer.
2013-06-14 Which Way for Bonds? Mapping a Path Forward by Bill Gross of PIMCO
In 1980, the Federal Reserve, led by Paul Volcker, tightened the quantitative noose to tame double-digit inflation, fueling an unprecedented tailwind for bond prices. Thirty years later we find ourselves at the other extreme, as central banks print money in the trillions of dollars to stimulate economic growth, and inflation is abnormally low. While we are not likely to see a repeat of that type of bull market any time soon, we also do not believe we are at the beginning of a bear market for bonds.
2013-06-04 Wounded Heart by Bill Gross of PIMCO
Joseph Schumpeter, the originator of the phrase “creative destruction,” authored a less well-known corollary at some point in the 1930s. “Profit,” he wrote, “is temporary by nature: It will vanish in the subsequent process of competition and adaptation.” And so it has, certainly at the micro level for which his remark was obviously intended. Once proud, seemingly indestructible capitalistic giants have seen their profits fall short of “everlasting” and exhibited a far more ephemeral character.
2013-05-01 There Will Be Haircuts by Bill Gross of PIMCO
It has been the objective of the Fed over the past few years to make even more innovative forms of money by supporting stock and bond prices at cost on an ever ascending scale, thereby assuring holders via a “Bernanke put” that they might just as well own stocks as the cash in their purses. Gosh, a decade or so ago a house almost became a money substitute. MEW or mortgage equity withdrawal could be liquefied instantaneously based on a “never go down” housing market. You could equitize your home and go sailing off into the sunset on a new 28-foot skiff on any day but S
2013-04-03 A Man in the Mirror by Bill Gross of PIMCO
Am I a great investor? No, not yet. To paraphrase Ernest Hemingway’s “Jake” in The Sun Also Rises, “wouldn’t it be pretty to think so?” But the thinking so and the reality are often miles apart. When looking in the mirror, the average human sees a six-plus or a seven reflection on a scale of one to ten. The big nose or weak chin is masked by brighter eyes or near picture perfect teeth. And when the public is consulted, the vocal compliments as opposed to the near silent/ whispered critiques are taken as a supermajority vote for good looks.
2013-02-27 Rational Temperance by Bill Gross of PIMCO
While the market was indeed moving in the direction of "dot-com" fever three to four years later, the Dow Jones Industrial Average at the time was a relatively anorexic 6,000, and the trailing P/E ratio was only 12x. For a central bank that was then more concerned about economic growth and inflation as opposed to stock prices, risk spreads, and artificially suppressed interest rates, the Chairman's query made global headlines, became a book title for Professor Robert Shiller and a strategic beacon for portfolio managers thereafter.
2013-01-31 Credit Supernova! by Bill Gross of PIMCO
They say that time is money. What they don't say is that money may be running out of time. There may be a natural evolution to our fractionally reserved credit system which characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a "big freeze" trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence.
2013-01-03 Money for Nothin' Writing Checks for Free by Bill Gross of PIMCO
It was Milton Friedman, not Ben Bernanke, who first made reference to dropping money from helicopters in order to prevent deflation. Bernanke's now famous "helicopter speech" in 2002, however, was no less enthusiastically supportive of the concept. In it, he boldly previewed the almost unimaginable policy solutions that would follow the black swan financial meltdown in 2008.
2012-12-04 Strawberry Fields Forever? by Bill Gross of PIMCO
As John Lennon forewarned, it is getting harder to be someone, and harder to maintain the economic growth that investors have become accustomed to. The New Normal, like Strawberry Fields will take you down and lower your expectation of future asset returns. It may not last forever but it will be with us for a long, long time.
2012-11-01 Time To Vote! by Bill Gross of PIMCO
So I pulled out my magic lamp that for some reason works only every October 22nd, and rubbed until the Genie appeared in his red and white checkered cloak with a 10-inch diameter Flavor Flav clock hanging ceremoniously around his neck. Being a rather forward, although not disrespectful Genie, he immediately said, "Mr. G, instead of the yield on the 10-year Treasury, perhaps this year you should wish to know who is going to win the Presidential election?"
2012-10-02 Damages by Bill Gross of PIMCO
How could the U.S. not be the first destination of global capital in search of safe (although historically low) prospective returns? Studies by the CBO, IMF and BIS (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow, and the dollar would inevitably decline.
2012-09-05 The Lending Lindy by Bill Gross of PIMCO
Our entire finance-based monetary system led by banks but typified by insurance companies, investment management firms and hedge funds as well is based on an acceptable level of carry and the expectation of earning it. In a New Normal economy where lenders dance to the Blue Danube instead of the Lindy, how should we move our own feet? Carefully, I suppose, and with recognition that historic returns are just that historic.
2012-07-03 What's In A Name? by Bill Gross of PIMCO
Not only banks and insurance companies but sovereign nations as well cannot all be counted on to guarantee a return of principal, let alone a return on investment. An authentic debt crisis which the world is now experiencing can only be ultimately cured in two ways: 1) default on it, or 2) print more money in order to inflate it away. There are very few clean dirty shirts in this world. Timing in investment markets is critical and at the moment the U.S. is considered to be the cleanest.
2012-05-31 Wall Street Food Chain by Bill Gross of PIMCO
Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of such previously sacrosanct debt represent a potential breaking point in our now 40-year-old global monetary system. Bond investors should favor quality and clean dirty shirt sovereigns (U.S., Mexico and Brazil), for example, as well as emphasize intermediate maturities that gradually shorten over the next few years.
2012-05-01 Tuesday Never Comes by Bill Gross of PIMCO
The current acceleration of credit via central bank policies will likely produce a positive rate of real economic growth this year for most developed countries, but the structural distortions brought about by zero bound interest rates will limit that growth and induce serious risks in future years. Gradually higher rates of inflation should be the result of QE policies and zero bound yields. Focus on securities with shorter durations bonds with maturities in the 5-year range and stocks paying dividends that offer 3%4% yields. Real assets/commodities should occupy an increasing percentage.
2012-03-27 The Great Escape: Delivering in a Delevering World by Bill Gross of PIMCO
When interest rates cannot be lowered further or risk spreads significantly compressed, the momentum begins to shift, gradually yields moving mildly higher and spreads stabilizing or moving slightly wider. In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form. We favor high quality, shorter duration and inflation-protected bonds; dividend paying stocks with a preference for developing over developed markets; and inflation-sensitive, supply-constrained commodity products.
2012-02-28 De-Fence by Bill Gross of PIMCO
Over the past 30 years, an offensively minded Federal Reserve and their global counterparts were printing money, lowering yields and bringing forward a false sense of monetary wealth. Successful investing in a deleveraging, low interest rate environment will require defensive in addition to offensive skills. The PIMCO defensive strategy playbook: Recognize zero bound limits and systemic debt risk in global financial markets. Accept financial repression but avoid its impact when and where possible. Emphasize income we believe to be relatively reliable/safe; seek consistent alpha.
2012-02-01 Life and Death Proposition by Bill Gross of PIMCO
When interest rates approach zero they may transition from historically stimulative to potentially destimulative/regressive influences. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short/intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation. We can't put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering.
2012-01-04 Towards the Paranormal by Bill Gross of PIMCO
The New Normal, previously believed to be bell-shaped and thin-tailed in its depiction of growth probability and financial market outcomes, appears to be morphing into a world of fat-tailed, almost bimodal outcomes. A new duality credit and zero-bound interest rate risk, characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion. Until the outcome becomes clear, investors should consider ways to hedge their bets.
2011-12-02 Beware the Falling Euro by Bill Gross of PIMCO
Neither the U.S. economy nor U.S. stock indexes will benefit from the euros decline. A declining euro means a rising dollar in relative terms, so our exports will necessarily become less competitive. During the Great Depression, the country that devalued its currency the quickest and the most was the country that was least affected by depression and that recovered the fastest. This truism will aid Euroland, and hinder the U.S. recovery.
2011-11-29 Family Feud by Bill Gross of PIMCO
Investors should recognize that Eurolands problems are global and secular in nature; it will be years before Euroland and developed nations in total can constructively escape from their straitjacket of debt. Global growth will likely remain stunted, interest rates artificially low and investors continually disenchanted with returns that fail to match expectations. Investors should consider risk assets in emerging economies, and bonds in the strongest developed economies, where the steep yield curve may offer opportunities for capital gains and potentially higher total returns.
2011-10-31 Pennies from Heaven by Bill Gross of PIMCO
Growth is the commodity that the world is short of at the moment. Once interest rates inch close to zero and discounted future cash flows are elevated in price, it's difficult to generate much more return if economic growth doesn't follow. Equity markets should be dominated by dividend yields and the return of capital via share buybacks, as opposed to growth. In fixed income assets, we suggest that portfolios should avoid longer dated issues where inflation premiums dominate performance.
2011-10-03 Six Pac(k)in' by Bill Gross of PIMCO
Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor. There is only a New Normal economy at best and a global recession at worst to look forward to in future years. If global policymakers could focus on structural as opposed to cyclical financial solutions, New Normal growth as opposed to recession might be possible.
2011-09-07 Helicopter Ben risks destroying credit creation by Bill Gross of PIMCO
The concept of showering money over national economies to combat deflation has been an accepted principle of monetarism for decades. A helicopter, however, is not your average aeroplane, and the usual laws of aerodynamics do not necessarily apply in all cases. Similarly monetary policy at the zero interest rate bound introduces a new dynamic that may conflict or even reverse standard logic that lower interest rates across the sovereign yield curve are everywhere and always stimulative to economic growth.
2011-08-30 New-Fangled Love Songs by Bill Gross of PIMCO
Liquidity concerns may affect all European peripheral bond markets unless the European Central Bank counters the rush for the exits with an enlarged daily checkbook. In the U.S., discord between rich and poor has led to lower, not higher, Treasury yields as approaching recessionary winds force the Fed and private investors to favor bonds. We prefer investing in the cleaner dirty shirt countries of Canada, Australia, Mexico and Brazil, along with non-dollar currencies that have strong trade ties with the Asian continent.
2011-08-02 Kings of the Wild Frontier by Bill Gross of PIMCO
The U.S. has averted a debt crisis, but there remains a stain on our reputation. Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit. In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at net present cost. Aside from outright default, there are numerous ways a government can reduce its future liabilities. They include balancing the budget, unexpected inflation, currency depreciation and financial repression.
2011-06-21 School Daze, School Daze Good Old Golden Rule Days by Bill Gross of PIMCO
The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets. Fiscal balance alone will not likely produce 20 million jobs over the next decade. Government must take a leading role in job creation. A growing number of skeptics wonder whether college is worth the time or the cost.
2011-06-01 Buy Cheap Bonds with Safe Spread by Bill Gross of PIMCO
If the government is going to artificially repress yield, then focus on the parts of a bond that are less repressed! Rather than outright default, many countries attempt rather successfully to keep nominal interest rates lower than would otherwise prevail. Over the long term, this “financial repression” results in a transfer of wealth from savers to borrowers. Investors shouldn’t give their money away, and at the moment, the duration component of a bond portfolio comes close to doing just that – because it doesn’t yield enough relative to inflation.
2011-05-03 The Caine Mutiny (Part 2) by Bill Gross of PIMCO
Low policy rates and the increasing negative real yields that they engender as inflation accelerates represent an immediate threat to investment portfolios. Bond prices dont necessarily have to go down for savers to get skunked during a process of debt liquidation. PIMCO advocates a renewed vigilance, stressing bond market alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies.
2011-03-31 Skunked by Bill Gross of PIMCO
Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising. Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden. Unless entitlements are substantially reformed, the U.S. will likely default on its debt; not in conventional ways, but via inflation, currency devaluation and low to negative real interest rates.
2011-03-02 Two-Bits, Four-Bits, Six-Bits, a Dollar by Bill Gross of PIMCO
A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and stability. Because quantitative easing has affected all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences. Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.
2011-02-02 Devil’s Bargain by Bill Gross of PIMCO
Money has become the economic and political wedge for profound changes in American society. Perhaps the most deceptive policy tool to lessen debt loads is the “negative” or exceedingly low real interest rate that central banks impose on savers and debt holders. Old-fashioned gilts and Treasury bonds may need to be “exorcised” from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint.
2011-01-05 Off With Our Heads! by Bill Gross of PIMCO
American politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion-dollar annual deficit. Meanwhile, policy stimulus is focused on maintaining current consumption as opposed to making the United States more competitive in the global marketplace. Dollar depreciation will sap the purchasing power of U.S. consumers, as well as the global valuation of dollar denominated assets.
2010-12-01 Allentown by Bill Gross of PIMCO
The global economy is suffering from a lack of aggregate demand. In the U.S. and Euroland, many policies only temporarily bolster consumption while failing to address the fundamental problem of developed economies: Job growth is moving inexorably to developing economies because they are more competitive. Unless developed economies learn to compete the old-fashioned way – by making more goods and making them better – the smart money will continue to move offshore to Asia, Brazil and their developing economy counterparts, both in asset and in currency space.
2010-10-27 Run Turkey, Run by Bill Gross of PIMCO
The Fed's announcement of a renewed commitment to quantitative easing has been well-telegraphed, and the market's reaction is likely to be subdued. We are in a 'liquidity trap,' where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there. The Fed's announcement will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.
2010-09-28 Stan Druckenmiller is Leaving by Bill Gross of PIMCO
The economic drivers that once pumped up asset prices and favored the production of paper over commodities are now retrograde. The reality during Stan Druckenmiller's 'old normal' was that prosperity and overconsumption were driven by asset inflation that in turn was correlated with leverage and interest rates. Investors are now faced with bonds yielding 2.5 percent and stocks staring straight into new normal real growth rates of 2 percent or less. There is no 8 percent there for pension funds. There are no stocks for the long run at 12 percent returns.
2010-08-24 Mr. Gross Goes to Washington by Bill Gross of PIMCO
Americans now know that housing prices don't always go up, and that they can in fact go down by 30-50 percent in a few short years. Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending. Private mortgage lenders will demand extraordinary down payments, impeccable credit histories and significantly higher yields than what markets grew used to over the past several decades.
2010-07-28 Private Eye by Bill Gross of PIMCO
The economy's New Normal of deleveraging, reregulation and deglobalization will neither be aided nor abetted by a slower-growing population, or by cyclical policy errors that thrust Keynesian consumption remedies on a declining consumer base. Current deficit spending that seeks to maintain an artificially high percentage of consumer spending can be compared to flushing money down an economic toilet. It would be far better to create and mimic other government industrial policies aimed at infrastructure, clean energy, more relevant education and less costly health care services.
2010-06-30 Alphabet Soup by Bill Gross of PIMCO
The lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – is the essence of the problem. The solution, according to William Gross, may be to add the letter 'R' to your name (as in Roubini, Reinhart, Rogoff, and Rosenberg) or, better yet, to embrace the words 'New Normal.'
2010-05-26 Two Will Get You Three (or) Three Will Get You Two by Bill Gross of PIMCO
Fiscal tightening and budget conservatism may have come too late for Greece and its global lookalikes. Continued deficit spending may be an exorbitant privilege extended to only a few. Caught in the middle are many developed countries that will likely face muted growth rates and a continued bumpy journey toward their destinations. Investors must respect this rather tortuous journey in the months and years ahead for what it is: a deleveraging process based upon too much debt and too little growth to service it.
2010-05-05 Lovin' Spoonful by Bill Gross of PIMCO
If a chef were to concoct a gourmet investment recipe, he would likely blend a teaspoon of intelligence with a tablespoon of common sense. The rating agencies in recent years have displayed little of either. In addition, they have brazenly sold their reputations for unbiased judgment to the very companies they purported to judge. Those looking to profit at their expense will dismiss them. They no longer serve a valid purpose for investment companies that are free of regulatory mandates, and that can think with a teaspoon of intelligence and a tablespoon of common sense.
2010-03-24 Rocking-Horse Winner by Bill Gross of PIMCO
Prudent lending must be directed not only towards sovereigns that can escape a debt trap, but ones that can do so with a minimum of reflationary consequences and currency devaluation. A unit of quality credit spread will do better than a unit of duration. Rates face a future bear market if global reflation is successful as central banks eventually normalize quantitative easing policies and 0 percent yields. Spreads in appropriate sovereign and corporate credits are a better bet as long as global contagion is contained. If not, a rush to the safety of Treasury bills lies ahead.
2010-03-01 Don't Care by Bill Gross of PIMCO
A lack of global aggregate demand, brought by twenty years of accelerated globalization, is the fundamental economic problem of our age. Many states have used government debt to make up for shortfalls in aggregate demand. But as the crises in Dubai, Iceland, Ireland and Greece show, not every state is able to pay off its new debt load. Investors should therefore concentrate on states that have lower credit or inflationary risk, such as Germany and Canada, and avoid higher-risk states such as Greece and the U.K.
2010-01-26 The Ring of Fire by Bill Gross of PIMCO
Bill Gross reviews two recent analyses (the Reinhart/Rogoff book and the McKinsey study) of the plight of economies faced with large fiscal deficits. He says that these support PIMCO’s view of the Ne
2010-01-06 Let's Get Physical by Bill Gross of PIMCO