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Posts Tagged ‘Bill Gross’

Bill Gross Making Sense on Cents

Posted by Larry Doyle on October 14th, 2009 12:56 PM |

Looking beyond the liquidity provided by the Treasury and Federal Reserve to refloat our equity markets, what will be the drivers of our economy and markets going forward? While Uncle Sam may think he can leave rates at 0-.25% for an extended period, at some point even ‘extended’ runs out. Will the Uncle Sam economy have adapted and implemented the structural changes necessary to move on to a new phase of growth and prosperity?

I am very concerned and reiterate that our markets are masking significant embedded issues in our economy and overall fiscal health.

As much as I found Pimco to be challenging when trading with them, and question their integrity in handling their outstanding Auction-Rate Securities issuance, I respect their views on the markets and economy. In fact, I think Bill Gross and Mohamed El-Erian consistently provide a lot of “sense on cents.”  What does Mr. Gross have to say about our economic landscape lately? He writes:

What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital” – the accumulation of it and the eventual efficient employment of it – for growth in profits and real wages alike.

Regrettably, more and more capital here at home is being directed toward the servicing of our massive deficit. Additionally, taxes will surely increase to do the same. Over and above those two definites, I believe strongly  that capital will increasingly look for opportunities outside our nation given the pressure on our greenback.

Gross touches upon an issue which I strongly believe is a MASSIVE drag on our current economy and our future well being, that is our  secondary schools which rank 18th overall in the developed world. Gross writes:

What California once had and is losing rapidly is its “capital”: unquestionably in its ongoing double-digit billion dollar deficits, but also in its crown jewel educational system that led to Silicon Valley miracles such as Hewlett Packard, Apple, Google, and countless other new age innovators. In addition, its human capital is beginning to exit as more people move out of the state than in. While the United States as a whole has yet to suffer that emigration indignity, the same cannot be said for foreign-born and U.S.-educated scientists and engineers who now choose to return to their homelands to seek opportunity. Lady Liberty’s extended hand offering sanctuary to other nations’ “tired, poor and huddled masses” may be limited to just that. The invigorated wind up elsewhere.

Do the powers that be in Washington and in the state houses possess the necessary discipline to right our ship and set sail on smoother seas? If so, they will have to display a set of values and practices which are entirely inconsistent with how our government operates. While I remain bullish on those who want to educate themselves, practice discipline, and save for better days, I am bearish on people who think Washington or other entities can provide those necessary values. Gross is also cautious in concluding:

Now that our financial system has been stabilized, one wonders whether California’s “Governator” and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around. Our future doggie bags can hold steak bones or doo-doo of an increasingly familiar smell. For now investors should be holding their noses, their risk orientation, as well as their blue bags, until proven otherwise. Specifically that continues to dictate a focus on high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a  “new normal” economy of slower growth, muted profit gains, and potential capital destruction via default, abrogation of property rights, and dollar devaluation.

If we think a return to business as usual is the proper path, we will merely go in circles and end up right back in this same spot….if not worse.

I welcome comments from those who share or differ with these assessments.

LD

Pimco Punts on the PPIP

Posted by Larry Doyle on July 9th, 2009 2:27 PM |

Did Bill Gross just flip off Uncle Sam? It would appear that he did. While the U.S. Treasury is touting the official launch of the Public Private Investment Program (PPIP) as a noteworthy event, the most significant aspect is the absence of Mr. Gross and Pimco as one of the managers. As Bloomberg highlights, U.S. Treasury Opens Distressed-Debt Program Without Pimco:

The U.S. plan to help buy as much as $40 billion in assets from banks got started almost four months after it was proposed and without Pacific Investment Management Co., the world’s biggest bond manager and an early supporter.

The Treasury Department picked nine money managers yesterday for the Public-Private Investment Program, or PPIP, including BlackRock Inc. and Invesco Ltd. Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the initiative’s design.

Uncertainties? How about if we return to Mr. Gross’ May 2009 Investment Outlook, in which he cautioned us all about business dealings with Uncle Sam:

If the government indeed becomes your investment partner,  you should keep the big Uncle in clear sight and without back turned.

Over and above Pimco’s absence, the other notable development within the PPIP is the fact that Uncle Sam plans on injecting 75% of the initial equity capital while the private managers inject 25%.  Given that equity split, why wouldn’t the taxpayer receive 75% of the returns? In my opinion, Treasury is injecting more capital simply because a $20 billion or even $30 billion launch would render this initiative as nothing more than PPIP: A Virtual ‘Odd Lot’, as I had written the other day.

. . . ‘without back turned’ . . . ‘odd lot’ . . . two strikes before the game has even begun.

Mr. Gross’ absence speaks volumes!!

LD

Does Populism Take Precedence Over Rule of Law?

Posted by Larry Doyle on May 7th, 2009 11:09 AM |

Bill Gross of Pimco recently wrote:

If the government indeed becomes your investment partner, you should keep the big Uncle in clear sight and without back turned.

Will the manner in which Chrysler has been handled up to now and is handled going forward serve as legal precedent for future bankruptcies? We will learn a lot VERY quickly as General Motors is in very much the same predicament. Given the issues raised by Tom Lauria, attorney for some of the non-TARP Chrysler creditors, are our markets witnessing populism taking precedence over the rule of law? Will our courts try to “thread the needle” under the guise of these automotive companies being special situations?

Answers to these questions will likely develop over time. Different justices may read the law in a different manner. I caution investors, though, that costs associated with parsing the rule of law may be postponed but are not foregone.

To that end, I believe it is also wise to take heed from Jeff Matthews of Ram Partners who raises these questions in a recent short interview on TechTicker:

tech-ticker

Additionally, for those who have not listened to the ten minute interview Tom Lauria provided Frank Beckmann on WJR Radio, I will provide my recap and link here:  Is Barack Obama Going Tony Soprano?  This interview is a MUST LISTEN!!

LD

Bill Gross Gives Sage Advice

Posted by Larry Doyle on May 7th, 2009 5:30 AM |

Bill Gross provides a healthy perspective on the market in his May 2009 Investment Outlook. Gross is a seasoned professional. While many money managers blatantly display their biases, Gross is too polished not to shoot straight. I share his views in this piece including:

2007 was a screaming mimi with the subprimes – if only because the liar loans and no-money-down financing were reminiscent of a shell game, Ponzi scheme, or some other type of wizardry that was bound to lead to tears. 

Stating the obvious here, but I appreciate the fact that a Wall Street pro will implicate those within his industry for effectively running a scam. 

2009 is a similar demarcation point because it represents the beginning of government policy counterpunching, a period when the public with government as its proxy decided that private market, laissez-faire, free market capitalism was history and that a “private/public” partnership yet to gestate and evolve would be the model for years to come. If one had any doubts, a quick, even cursory summary of President Obama’s comments announcing Chrysler’s bankruptcy filing would suffice. “I stand with Chrysler’s employees and their families and communities. I stand with millions of Americans who want to buy Chrysler cars (sic). I do not stand…with a group of investment firms and hedge funds who decided to hold out for the prospect of an unjustified taxpayer-funded bailout.” If the cannons fired at Ft. Sumter marked the beginning of the war against the Union, then clearly these words marked the beginning of a war against publically perceived financial terror.

I have defined the future of investing as a Brave New World. In a similar tone, Gross is highlighting the shot across the bow taken by President Obama. As an investor, one needs to be on guard and not turn our back on Uncle Sam.  

The threat, of course, falls under the broad umbrella of “burden sharing” and is a difficult one to interpret and anticipate, if only because the concept is evolving in the minds of policymakers as well. But clearly, as this financial crisis has morphed from Bear Stearns to FNMA, Lehman Brothers, AIG and now Chrysler, the claims of stockholders and in some cases senior debt holders have suffered. Please hear me on this. That is the way it should be. Capitalism is about risk taking and if you’re not a risk taker, you should have your money in the bank, Treasury bills, or a savings bond, not the levered investment of a bank or an aging automobile company. Let there be no company too big, too important, or too well-connected to fail as long as the systemic health of the economy is not threatened.

Gross is making a stand here for capitalism and against the non-systemic government bailouts.  I personally believe some basic tenets of capitalism have suffered excessively in the process of promoting Obama’s social agenda. 

How does one invest during such a transition? Investors should recognize that this grassroots trend signals – most importantly – an increasing uncertainty of cash flows from financial assets. Not only will redistribution and reregulation lead to slower economic growth, but the financial flows from it will be haircutted and “burden shared” by stakeholders. In turn, the present value of those flows should reflect an increasing risk premium and a diminishing multiple of annual receipts.

Gross’ commentary here is telling us that with slower growth we should not expect rising equity markets (despite the recent rally). Look for wider bond spreads and/or higher rates given the increased risks and uncertainties in cash flows. 

Slower growth can be a public good if it avoids the cataclysmic effects of double-digit unemployment, escalating foreclosures, and fear of financial insecurity. But the Obama cannon shot will have financial consequences. Do not be deceived by the euphoric sightings of “green shoots” and the claims for new bull markets in a multitude of asset classes. Stable and secure income is still the order of the day.

Gross is not pulling any punches in telling us not to “be deceived by the euphoric sightings of green shoots.” Gross is not buying the perceived improvements in the economy. Given his rapport with those in Washington, he would not make this statement publicly.    

Sage advice from a seasoned pro.

LD

Navigating Sense on Cents

Posted by Larry Doyle on April 11th, 2009 7:29 AM |

As many people travel this weekend to be with friends and family, I would like to take an opportunity to navigate the highways and byways of links and material connected to Sense on Cents.

I hope this post will open more eyes and ears to wider avenues of information as we collectively try to make sense of the economy, markets, and world of global finance.

If I could beg your indulgence, if any of these links do not interest you but you feel they may help others, please pass them along. I thank you in advance.

With no further adieu, let’s travel around Sense on Cents . . .

Career Planning: I have always taken pleasure in providing career guidance. I provide a wealth of  Must Read articles from a variety of sources along with a Workshop for developing a game plan.

Market Data:  this page connects to real time market data from the Wall Street Journal. Every sector of the market is a mere point and click away. Stocks, bonds, currencies, commodities, economic data, international markets, historical graphs, and more…

Newsworthy: some stories have made headlines, while others are off the beaten path.  These stories come from your local papers and from posts around the world. I welcome sharing them with you.

No Quarter Radio: “Sense on Cents with Larry Doyle”  is my weekly Sunday evening radio program. I share insights and perspectives on the markets and economy while also hosting outstanding professionals from all corners of finance as my guests. All shows are archived and available as podcasts on iTunes. I also provide an audio player right here on Sense on Cents immediately after the completion of each show so that you can listen to a playback of the show right from this site.

The Reading Room is filled with a variety of books (pleasure, finance, inspirational, educational) that I have enjoyed and found impactful.

For those working their way up the learning curve (aren’t we all?), I have
Primers on the following topics:

Investing: anything you could ever possibly want defined or simplified.
Mortgage Market and Mortgage Finance
Financial Aid
Insurance
Debt Management

I also closely track a number of professional money managers, economists, and analysts. This collection of pro’s pros are my Economic All-Stars and include:

Laszlo Birinyi: outstanding equity manager and Wall Street veteran

Nouriel Roubini: highly acclaimed NYU economist

Jeff Gundlach: the highly acclaimed Chief Investment Officer of Trust Company of the West

Bob Rodriguez: along with his First Pacific Advisors colleague Tom Atteberry, named Morningstar’s 2008 Fixed Income Managers of the Year

Bill Gross: the highly acclaimed bond manager at Pacific Investment  Management Company

Greg Mankiw: widely respected Harvard Professor of Economics

John Mauldin: a true favorite of mine, this market analyst is amazingly well connected

Sheila Bair: the chair of the FDIC and, in my opinion, the preeminent regulator in the U.S. government today.

Carmen Reinhart: Professor of Economics at the University of Maryland

Thought Leaders: 22 of the finest economic minds in the world today  connected to Project Syndicate, an international association of 415 newspapers in 150 countries !!

If you are reading this post, I hope this trip has opened new avenues of interest for you. As the moderator, I actively engage readers, so please do not hesitate to ask questions and leave comments, or – as some may say –  sign the Guest Book!! Please share the site with friends, family, and colleagues.

Ultimately, I hope you enjoy coming to Sense on Cents as much as I do!

Have a blessed holiday ~

LD

Shake Hands With Uncle Sam

Posted by Larry Doyle on February 27th, 2009 5:30 AM |

uncle-samWhen trading bonds on Wall Street, I always wanted to know what the largest accounts were doing. A handful of these accounts were so massive that in order to make a meaningful change in their portfolio they had to execute trades of monstrous size. In executing trades with these clients, there was enormous risk. That said, if I did not provide enough liquidity to the accounts then we would stop seeing their inquiry. Information is everything, so not seeing their business was even more dangerous than printing some of it. Given this balancing act, I would try to pick and choose my spots. Amongst these clients is the largest bond manager in the country, Pacific Investment Management Company, otherwise known as Pimco, headed by the legendary Bill Gross (one of our Economic All-Stars highlighted in the lower left sidebar).   

Bill offers his thoughts on a monthly basis. Anybody with even passing interest in the markets should read his remarks. I will offer an overview: (more…)






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