Posted on 06/17/2013 9:53:07 AM PDT by blam
Global Recession Forecast - Is PIMCO's Bill Gross Wrong Again?
Stock-Markets / Financial Markets 2013
June 17, 2013 - 05:01 PM GMT
By: Money Morning
Keith Fitz-Gerald writes: Stuart Varney put the question directly to me last week during his Fox Business show:
What do I make of comments from PIMCO's Bill Gross...that he's projecting a 60% chance of a global recession in the next three to five years?
Now, Bill Gross is obviously one of the most powerful men in the world. PIMCO, the firm he founded, is the world's biggest bond manager. He has assets under management of more than $2 trillion (that's right, with a "t").
So what exactly do I think about Mr. Gross's latest prediction? Not much.
This is like predicting 10 of the last two recessions...eventually he'll get it right.
The problem is not that Gross is stupid or even wrong. In fact, I believe Gross is one of the most intelligent managers in the game today. But here's what Money Morning readers need to understand: Gross has been horribly wrong on three major market calls in the last three years:
* In 2011, he famously called for an exit on Treasuries.
* In 2012, he called the "cult of equities dead."
* In 2013, he said stocks would be low 4-5% single digit returners.
Wrong, wrong and wrong.
In 2011, Treasuries continued to run far higher, prompting an apology from Gross to his clients -- many of whom he had taken out of Treasuries and for whom he'd caused tremendous underperformance.
In 2012 equities ran up sharply in 2012, with the S&P 500 finishing the year 13.41% higher than when it started.
In 2013, adding insult to injury, the markets have flirted with record all-time highs. The markets have pulled back since May, but the S&P 500 is still up 11.19% as of June 11.
Anybody who made all-or-nothing decisions based on Gross's past prognostications is a lot worse for wear and has missed out on some really great profits.
Maybe he'll get it right this time... I don't know. . It's just that the odds aren't especially favorable that he does.
Gross (and PIMCO) has been the beneficiary of a 32-year bull market in bonds that began in March 1981. It's pretty hard to screw that up when the tide is running one way.
Where he seems to be having trouble in recent years is in doing something unfamiliar to him - picking major market reversals in both stocks and bonds.
The other thing to bear in mind is that Gross has been known to "talk his book." That's an expression that means you talk to the press in ways that clearly advance your money management interests.
Think about it for a minute. There are very few major money managers who don't.
Jim Chanos constantly berates China. He's an acknowledged short seller and stands to benefit significantly every time that nation takes a header.
Warren Buffett talks incessantly about value stocks and the need to stay in the game when things get tough. Most of the time, his comments are brought to light after he's made significant acquisitions and often at bargain-basement prices. The public follow-on can put a lot of wind in his sails.
John Bogle, who founded Vanguard and is regarded as the father of passive index investing, harps on individual stock pickers because he believes that index investing is the better way to go. Is it any surprise that the firm he founded, Vanguard, is one of the world's largest fund families with $2 trillion as of December 2012?
Nope.
Of course Bill Gross wants to stir things up by talking about what he believes in...bonds. That's only logical.
Here's the thing...I have no idea what the redemptions are at PIMCO since March 2009 when the markets bottomed, but I do know that a bond manager's biggest fear is that money will rotate into equities.
Not only does this change the characteristics of the investments he makes on behalf of his clients, but such shifts potentially shoot great big holes in the firm's revenue stream, too. Gross likely stands to lose billions a year in fees - give or take a few zeros - if interest in bonds wanes.
So, talk up a global recession where growth stagnates, stocks tumble under lower earnings expectations, and what investment sector is the best place for your money? Hmmm, bonds?
The point is, smart people like Gross are also successful people and much of that comes from convincing people that they're right, not just for intellectual purposes, but because there's also a lot of money on the line.
Buyer beware.
making predictions is tricky. especially when its about the future
And especially when the markets are manipulated.
So he says there is a 60% chance (read: a little more than 50 - 50 chances) that we will have a global recession in 3 to 5 years. He’s not really sticking his neck out much, now is he? I’ll do him one better. There is a 60% chance of a global recession in the next 10 years.
I’ll do them better
There’s a 100% chance of a Global Recession happening right now and the Recovery that is supposedly going on is only because of manipulated numbers and media lies.
So he says there is a 60% chance (read: a little more than 50 - 50 chances) that we will have a global recession in 3 to 5 years. He’s not really sticking his neck out much, now is he? I’ll do him one better. There is a 60% chance of a global recession in the next 10 years.
I have to disagree. Things aren't as bad as they were in '08. The world and our country are in a very weak recovery period. NOT to say it couldn't and shouldn't be a whole lot better.
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