Posted on 07/01/2013 7:42:44 AM PDT by Kaslin
Bill Gross Discusses the "Tipping Point" For Bonds; Does He Miss the Boat?
Bill Gross did not see this major selloff in bonds coming. He discusses the setup in his recent Investment Outlook called The Tipping Point.
Much of the article is about how he almost tipped a ship while in the Navy. He uses the tipped ship metaphor to talk about the position in bonds.
Gross says "Markets just had too much risk, and in PIMCO’s opinion, too much hope for a constant QE and for the growth that it would produce. In effect, the ship was top heavy with too little ballast. Guess I should have known, huh?"
That's water over the dam at this point so the question Gross asks now is "Well where does the ship go from here?"
Here is a snip of Gross' explanation.
Should you as a bond investor jump overboard and risk the cold money market Atlantic Ocean at near zero degrees? We don’t think so – and not because we want to keep you on board – we just don’t think so. Why not?
1) The Fed’s forecast of the economy which prompted tapering panic is far too optimistic. If 7% unemployment is tapering’s final port of call, we simply think that we’re much further away than the Fed’s compass would suggest. We argue for structural headwinds – demographic, globalization, and technology influences – that have had and will continue to have dampening effects on domestic and global growth. The Fed, we would argue, is too cyclically oriented, focusing substantially on housing prices and car sales. And speaking of housing, since mortgage rates have risen by 1½% in the last six months and the average monthly check for a new home buyer is up by 20–25% as well, then as I tweeted several weeks ago, “Mr. Chairman are you serious?” Growth will be negatively influenced.
2) Inflation, according to the Fed’s own statistics is running close to a 1% pace. The Fed has told us that they “target,” “ target” 2% and for the next 1–2 years are willing to accept even 2½% until they reverse engines. Fed Governor Bullard of the St. Louis Fed was in our opinion correct where he dissented from the majority decision several weeks ago, citing the distant shores of 2%+ inflation and the seeming inability to even move in that direction.
3) Yields have adjusted by too much. While T.V. and the press focus on 10-year Treasuries at 2.55% as their guiding star, subjective stabs by yours truly or anyone else are difficult day to day. ... To my eye, Fed Funds will not increase until at least mid-2015 and even then subject to a consistently strong economy that produces 2%+ inflation. I wonder if we can get there in this decade to tell you the truth. But the beauty of this North Star Fed Funds sextant is that it can be rather directly observed in futures markets, either for Fed Funds or for Eurodollars, which are a close companion. Right now, Fed Funds futures markets are predicting a 75 basis point yield in 2015, and Eurodollars validating a similar conclusion. That would suggest a mispricing, despite the obvious caveat of professional observers that some of the 75 is a surcharge for potential volatility. In any case, if frontend curves are up to 50 basis points cheap, then intermediate curves – the 10-year Treasury – may be as much as 35 basis points too cheap. They belong in our opinion at 2.20% instead of 2.55%.
So there you have it, fellow passengers and paying clients. Don’t jump ship now. We may have reached an inflection point of low Treasury, mortgage and corporate yields in late April, but this is overdone.
Did anybody think the government wasn’t doing this? Of course. Anything they deny they are doing.
Countries have spied against the US and the US against other countries for hundreds of years and will probably continue to do so
Germans Loved Obama. Now We Don’t Trust Him.
Excerpt:
That was my motivation for publishing the metadata I received from T-Mobile. Together with Zeit Online, the online edition of the weekly German newspaper Die Zeit, I published an infographic of six months of my life for all to see. With these 35,830 pieces of data, you can follow my travels across Germany, you can see when I went to sleep and woke up, a trail further enriched with public information from my social networking sites: six months of my life viewable for everybody to see what exactly is possible with “just metadata.”
Three weeks ago, when the news broke about the National Security Agency’s collection of metadata in the United States, I knew exactly what it meant. My records revealed the movements of a single individual; now imagine if you had access to millions of similar data sets. You could easily draw maps, tracing communication and movement. You could see which individuals, families or groups were communicating with one another. You could identify any social group and determine its major actors.
All of this is possible without knowing the specific content of a conversation, just technical information — the sender and recipient, the time and duration of the call and the geolocation data.
“Countries have spied against the US and the US against other countries for hundreds of years...”
I like the holier than thou attitude, as if Germany has never spied on anybody.
Germans have no 4th Amendment rights under the Constitution. American citizens, on the other hand, do.
Your posts are typically fantastic.
Is it just ME this time?
The title strongly suggests this post centers on domestic espionage, but my read shows very little of that in the body of the posting.
I re-read a couple times, and am I just nuts or something? I don’t get it.
Again, typically I relish your posts.
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