thinks this status is retarded wannabe web2.0 bull#$% from a 80's style website
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Frankly I'm not so sure in the interm that stocks would be a wise investment when compared to bonds. Consider that if yields are going ot be going up then that would mean credit costs go up as well and that is the fuel that drives innovation.
Classic economics shows that industries that have seen price destruction and tight profit margins show stiffed innovation and its the monetary intervention that lowers rates on credit that encourages investment and innovation, in an otherwise unprofitable industry until rates go up.
If bonds yields go up then there is going to be no credit for a long time to go and consumers will be paying down debt the whole way. That does not bode well for business as consumer demand will grow slowly.
yeah he has been preaching it for what now 4 years?
Investment Outlook
Bill Gross | August 2006
The End of History and the Last Bond Bull Market
They say “Life is a journey, not a destination” and I suspect for the most part that’s true. One-time lottery winners revel in their fifteen-minutes of profligacy, but since their journey rarely involves anything more strenuous than a trip to the 7-Eleven® Lotto counter, it’s hard to imagine much passion or intensity beyond the discovery of the magic ticket. Better to have entered a multitude of lifetime Lottos – advancing and falling back like a two-step forward, one-step back Sisyphus than to have hit the big one out of the blue. Building relationships, families, and careers seems personally much more valuable when viewed as an experience rather than a backward-looking achievement. God may have created the world in six days and rested on the seventh, but while relaxing in a heavenly easy chair, I’ll bet He (She) was thinking about all the fun that was had between Monday morning and Saturday night.
Not to trivialize this thought but I must tell you that my most recent affirmation of the “Journey vs. Destination” proposition has come from my new iPod and the building of a playlist. Now to you youngsters, the advent of the iPod must have seemed like one more small technological step for man – but for me it was more like a great leap for mankind. I mean just turning the thing on and off was and remains a major achievement for me, let alone creating a library of hundreds of CDs inside a cell phone look alike. But my wife Sue is into creative change and keeping young, so last month she bought me an Apple and an iPod and we spent enough time at the local Mac store here at the mall to figure out how to transfer music from my hundreds of CDs to this little itsy-bitsy thing I could barely hold in my hand. My God what fun. Not playing the music mind you. I haven’t had time for that. It was the creation of the playlist that was the fun; deciding which songs to keep, which to delete; transferring them into the Mac and then to the iPod; sifting, culling, condensing, organizing – two-steps forward, a moment of technological panic then one-step back. Now that I’ve created a playlist of 2,000 songs, however, I’ve sort of reached a temporary destination. I mean how many songs can you really play? Can I possibly listen to all of this music in my sleep? Hardly. I’ve decided though that since the experience was so much fun, I’ll just have to root for Steve Jobs or Bill Gates or some other technological wizard to come up with the next new thing so I can keep on “experiencing” as opposed to “reaching destinations.” What a funny little game life can be sometimes.
My “experience” in recent days in the bond market has been something I wouldn’t want to be replicated on an iPod playlist: too much tension, too many sleepless nights. Market turning points have a habit of doing that and this time has been no exception. That statement, of course, explicitly announces that I think the high in interest rates has been reached, something I rather brashly and perhaps recklessly announced on Bloomberg TV and Reuters on July 7th. Chock up another “Dow 5,000” perhaps – sometimes I just can’t help myself when it comes to the press. Nonetheless, despite the rather cryptic pronouncement that the bear bond market was over, an enormous amount of PIMCO time has been spent in the formation of that decision, with piles of it, now decorating my trading desk, provided by investment grade corporate head Mark Kiesel and up-and-coming PIMCO professionals such as Saumil Parikh and Rahul Seksaria. Not that that’s proof of anything, but we have done our homework. As I begin to describe some of the results let me first point out that the end of a bond bear market and the peaking of Fed Funds are not necessarily coincident. As a matter of fact, bond prices usually bottom several months before the last FF hike as the market begins to anticipate the Fed, which in turn is attempting to anticipate the economy and inflation.
The process in many ways is reminiscent of Keynes’ description of a beauty contest. If you want to find out the winner he hypothesized, don’t look to the stage but at the judges’ faces. The bond market not only tries to gauge the expression on the Fed governors’ faces, but to anticipate them – sometimes correctly, sometimes incorrectly as yours truly would admit to over the past six months. Nonetheless, despite premature calls for Fed Funds peaks throughout 2006, this is my first attempt this cycle at calling a bear bond market bottom, which is a somewhat different process – beauty contest and all.
Why then should the Fed be stopping and the bond market have bottomed in early July? The overarching reason is that 425 basis points of short-term hikes and the concomitant tightening of the yield curve in the past several years has been more than enough to slow economic growth and contain inflation. That’s a bold statement to make in the face of an apparently still strong domestic economy, a booming global environment, and accelerating core CPI numbers, but PIMCO’s cyclical analysis would suggest that it is justified. No doubt, Asian and Euroland growth is acting as a strong magnet for U.S. exports but the tightening cycle in the U.S. seems to have run its course, primarily because of its effect on housing and related repercussions on consumer spending and economic activity.
To gauge the relationship between Fed tightening/housing/and the domestic economy PIMCO looks at a number of evolving relationships including the rather dominant connection between Fed action and economic activity which tends to span 12-18 months in terms of lead times. Having begun tightening over 24 months ago, we should be experiencing a slowdown by now and in fact we are. Consumption, employment, and even capital spending aggregates are on a downward growth path, not at a pace that would indicate recession, but something more indicative of a 2% real GDP economy with probabilities for even lower percentages as we move toward year-end. Recession/no recession is really a faux decision to be entertaining at bond market turning points. Any number of cyclical histories point toward bond market prices bottoming – and the Fed peaking – as the economy downshifts into second or first gear as opposed to breaking to a full stop.
But this cycle in particular has been dominated by the accelerating trend in housing prices – making consumers feel wealthier and able to borrow/spend more money than ordinarily is the case. And so it has been a particular focus of PIMCO (and the Fed as well) to concentrate on the fate of housing in order to forecast the future of the economy, inflation, and therefore the bond market. It’s not looking that good folks – housing that is. PIMCO’s on-the-ground analysts, who for nearly a year now have roamed the country with random real estate agents in search of local housing trend information, report that prices in many areas are actually declining which has significant implications for the economy, inflation, and interest rate trends. A just-released report by the National Association of Realtors confirms that nationwide the year-over-year housing price gains have virtually disappeared and seem to be heading into the red.
One of our centerpieces in analyzing this cycle dominated by housing is a Federal Reserve Study finished in September of 2005 entitled House Prices and Monetary Policy: A Cross-Country Study1. The 65-page treatise covers 35 years and housing cycles in 18 different countries including the U.S. While too extensive to go into detail here (and too singular to rely on entirely) I will summarize the critical two paragraphs:
We find that real house prices are pro-cyclical and tend to reach a maximum near business cycle peaks, often after a prolonged period of buoyant growth in activity has raised output above its potential level and inflation pressures have begun to emerge. Subsequently, real house prices fall for about five years and their previous run-up is largely reversed. Real GDP growth slows during the first year or so after house prices peak as do growth rates of private consumption and investment.
House price booms are typically preceded by a period of easing monetary policy with FF rates bottoming out about three years before house prices peak. Rates then reverse quickly (after the peak) in response to falling GDP growth (my emphasis).
While there have been myriads of Fed studies, many of which have proved fallible, I find many of the statistical correlations and conclusions in this one highly significant and certainly eerie in terms of the current U.S. housing boom: FF bottoming out three years (July 2003) before a housing price peak (July 2006?); buoyant GDP growth and inflationary pressures beginning to emerge (1st half 2006); and of course the critical follow-on conclusion shown in Chart III, a quick reversal of rates shortly thereafter (1st half 2007?).
On average, short rates have fallen by over 400 basis points once a peak in housing prices has been established, a necessary function of central bank policies worldwide in order to rejuvenate asset prices – housing, equity, and bond markets among them.
I previously referred to piles of PIMCO studies on my trading desk in addition to the Fed paper described above. One of them, an analysis of the “embedded” average coupon of Treasury, mortgage, and corporate yields in relation to Fed Funds rates was the topic of my January 2006 Outlook. Other studies relate economic statistics and leading indicators to cyclical halts in Fed hikes. Almost all of them point to June/July of 2006 as a serious inflection point.
Well we shall see won’t we – whether July 7, 2006 will be another “Dow 5,000” or not. Tricky business this forecasting. Even when posing as a long-term oracle as Francis Fukuyama did when he wrote his famous The End of History and the Last Man in 1989, the world can zig and zag and stone you intellectually faster than you can say Islamic radicalism. I shall don sufficient armor and prepare to be stoned. If such is not to be my fate, then the title of this Outlook makes an intriguing additional claim – that this bond bull market will be the last; that history, as almost all active bond managers have known it since 1981, will come to an end a few years hence. Whether it bottoms at yield points lower than reached in 2003 is not really forecastable at this point; nor is the claim that this will be the last bull bond market a realistic one. Like Fukuyama’s book title, it’s more of a headline-grabber than a truism. The important idea is that such a forecast speaks to eventual reflation, inflation, and declining bond prices sometime out there in 2009 and far beyond as the U.S. seeks to address its enormous future liabilities concentrated in social security, healthcare, and foreign holdings of U.S. bonds. But that is a story for next month’s Outlook – I promise, I’ve already written it. For now, and for the next few years, however, enjoy the gradual, then more rapid progression of our “last” bond bull market. It should be a great experience and – while it lasts – a marvelous destination.
William H. Gross
Managing Director
I have had a long study on trade cycle theory. I have become some what of a methodological naturalist when it comes to business cycles and Austrian economics.
I consider trade cycle theory to be spot on now. I disregard the need to peg currency to any material object but I also abhor monetary policy and the need to stabilize prices. I've come to a conclusion that its monetary policy that amplifies the boom and bust cycles. I consider this neither good nor bad. I would rather it not happen for the sake of every man, but I will not fight it.
Trade cycles are not well timed. There are no hurst patterns and to imply there are put those believers into the same camp as religious zealots and gold bugs who would rather believe in santa claus for the chance that they will receive a gift under a dead tree but once a year.
I have found some very good signals that lead trade cycles however how the market digests them can make trading these leading indicators painful for several months at a time.
Hope you are doing well.
I shorted some oil for a position trade. Its toppy in the range again. Will match my short in gold and a dollar rally that could have a short term top around USD Index 85. When 10y yield breaks over 4.00% that is when the move will really take off.
Does that ever look like a consolidation pattern.
Fed is 6bill off its limit on MBS Purchase program and is at 2.296 trill on its balance sheet.
Bernanke announced to Congress he wants to shave 1trill off the BS.
3,5,7 y bond auction sucked this week. Fed was buyer of last resort and announced they are going to stop QE. I'm guessing bond traders were using that to their advantage as the Fed bought up bonds to keep yields down. I could see a lot of traders selling into that Bid probably over leveraged even. It's all coming to an end. So the selling we are seeing is probably the sign of a peak in treasuries. We should expect yields to start ticking up.
I see 10y yield going to at least 4.75 this year. Probably a stop off at 4.3 first. Did you notice the spread tightening.
Plus that the dollar has had a strong rally that will probably top off around 84 in April-May. That correlates to the rise in yields. Money inflows form Europe perhaps? I would like to see the Dollar move up to the mid 90s over the next year. That could spell a double dip. Because yields will be up in the 4-5% range when a lot of IO and ARM mortgages reset this summer. It will also quelch home buying demand. Rise in foreclosures and we repeat this all over again.
Bottomed back in the fall maybe. I think he has some clients that want out of the stock with the recent tops and the broader market selling off in January.
Dubai Debt Default. Say that 5 times fast.
When you own the investment bank 8 million dollars that is your problem, but when you owe the bank 80 billion dollars that is the investment bank's problem.
Did you hear Bill Gross is going to try his hand at equities now? Bond bull is over? It was on bloomberg the other day. Cant find a citation.
looks like all the easy money has been made in junk. volume is down or consistent of the last couple moneys. the shock is gone. now if the economy is recovering and going to be in good health then risk in holding junk bonds is reduced and buys can keep holding for the yields returned which are now very low.
The question is, would it be safer to hold junk now or roll it into longer term lower risk lower yield instruments. capture that profit and hold onto it for the long halt.
Either way this sharp yield curve is strained. Larger parties like investment banks and the Fed need a sharp curve but the market want a stable flatter curve. But investment banks can't afford it now. While they are profitable again, its on top of the lot of risk that they keep quiet about. If things turn south again then the banks already leveraged to the hilt to cover losses from being overleveraged in the past are going to get creamed.
What is the shoe that needs to drop next to cause another crisis. We had housing that blew up banking that blew up stocks and credit. We are leveraging money lent to over other overleveraged positions. What if that is unwound for some reason?
If CIT fails then they get a lot of good health commercial investments that they can put on their books to weather the next couple years even if residential mortgages start to fail more.
consider that that is a hand propping up bonds/ suppressing yields.
it's all dollar adjusted. with the HFT the low retail investor turn out and the so called "wall of money" on the "sidelines" they just walk it up. investment banks are buried deep in debt, investment banks make the markets, investment banks are the analysts that are under reporting so everything is always beating earnings. it's all collusion because they need to dig themselves out. everyone from governments, to banks to 401k investors all have an incentive to move the markets up.
lets just go to 100. I mean the retail investor could capitalize on 50 year bonds. Only ones that should be making money right now should be banks and governments. http://seekingalpha.com/article/108955-a-100-year-bond-the-ultimate-money-printing-device
and miss out on the christmas rally? are you mad?!?! dow 30,000 man. there is an insane rising wedge building in the markets. Most stocks are riding the top end of this up channel since march.
momentum is slowed so we don't get the gains of the spring but its going to grind up until Dec when tax loss selling comes into focus. I think we make it to dow 10300 10500 before it back tests 10000 again and confirm the break. I think that that point the rising wedge breaks and we take a 10% haircut from 10500.
that brings us back to 9400-9500 and scares people with a head and shoulder top. Sept09-Mar10. LT capital gains profit comes into play in march and we should see more selling. This will probably be a bear trap so Goldman and and gang to catch the market again and move it back up. Because a 10500 head with a 9500 neckline gives us a 8500 target. And that is a Fib50% line from the Mar09 bottom at 6500 and the 10500 top in Dec09.
Wouldn't that be a nice bear to scare everyone out of the markets with and get the HFT machine recharged. But 8500 would be a scare tactic and I see us falling to about 9000 in Mar10. That tests the bottom of a channel from Mar09 and allows the rally to continue.
the 50% Fib of the bear crash from 14000 to 6500 is around 10250. So we might find that hard to push higher over and a reason to back test support levels.
Plus the dollar is near support levels back in early 08. If the dollar plays along as it should since most Asian countries have been talking devestment and removing the dollar as a reserve currency it means they are buying it up. there is also the anticipation that the Fed will start to remove the QE. As some countries have already raised rates and BoE is talking it up now too. Fed will raise rates early 2010. All other markets are anticipating it. Equities are ignoring it because they are punch drunk right now. So they will react not predict.
wow someone is really trying to prop the bond market up. I mean I think there is an overwhelming fear of yields going up. But Mr. Anderson do you hear that sound, that is the sound of inevitability. Too much money in reserves dammed up and ready to be deployed. Too much for a single federal reserve to soak up at once.
and there it is. lol
that MACD looks like its going to dip again by mid October. Maybe back down to the Low first week of Sept. Next run up after that will make a lower high and then its a cycle back down.
Germans are issuing debt in US Dollars now. Looks like the writing is on the wall. If can trust the Germans for one thing it is understanding when an economy is getting artificially and overinflated.
http://www.zerohedge.com/article/germany-issued-4-billion-dollar-denominated-bonds
I wonder if Gross bought back some treasuries for the winter?
riding support. this is usually the season when yields start crashing. then they settle low somewhere around late winter early spring.
The prices of ink and and paper fiber have risen of late. And has had a dramatic effect on the ability to print monetary policy at the warranted rate. As a result the Committee has decided to gradually slow the pace of monetary production and anticipates that the presses will be idled by the end of October.
Press Release
Federal Reserve Press Release
Release Date: August 12, 2009
For immediate release
Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
half way there. ndx and compq are leading the upside. if they stall here at the 50% giving time for the broader averages to hit the 38.2%, then I guess profit taking takes hold and we get a retracement. market indexes are honored the 38.2% retracement. may honor the 50% as well.
there is a perfect 100basis point spread between the yields on the 5 10 and 30 year bonds. the only discount are on the short terms or in order words what the banks pay to borrow. orderly.
yields are rising.
SPX is outside the channel now. over extending the rally. it should hit 900 at the 50% retracement today. 915 is the back test point. if it goes up and over then it invalidates the H&S pattern and goes up and over the rising channel between april and june making this a very large bear trap. it has to stay over 890 to invalidate the neckline though.
the bullish case is for 990-1000 by late july early august.
bearish case is for a peak at 916-920 and a test of 845 in the same time frame.
SPX hit 893. that is an ABC 38.2 retracement off the 931 to 869 move down. last time it did a 61.8 retracement off the 956 to 888 move.
so does it break? that's a 50% retracement if the neckline breaks. 810-820.
so far the trend is that 3 month yields are rising and long term yield will be falling. its seasonal that yields fall in the summer and fall. but what bothers me is that 90day yields can't go any lower and stay that low for anymore than a few days, other wise they are volatile.
meaning we are seeing a faltening yield curve and the bottom of the cycle. this should only happen near the peak. if 2008 is a recession then the peak should happen about 3-4 years from now. this is not good.
UPDATE- And price is falling. well that means the TBT put is over for now. We go back and double bottom on TLT. Maybe see 84?
Note: equity prices falling WITH bond prices. Selling treasuries and equities????? Feels like winter.
it will be interesting where we go from here in the next few days. we are riding the low end of a channel on the equity markets. bonds have bounced. do they go back and double bottom or run higher? if they run higher then that is not good of the equity markets. we get a channel break and lower lows.
this week is critical.
flattening yield curve you say?!?!?! by gosh the Fed better start raising rates.
fomc today. market corrected ahead of it. probably a play to build up cash for a run into the release. if SPX breaks 907 at 2:15 then its off to the races. probably close 921-918 if that happens.
not really a moderator. just like to comment. too much work managing boards here. waste of time really unless I have options to exercise into the market.
preaching their book like Bill Gross does.
are we going to 84 on TLT?
those are some long wicks. So do they come in 3's? yeah this is the time to start buying bonds then and keeping the short on yields. It will probably be a good 6-9 month long play.
I still want to see TLT double bottom though
yup flight to quality is unabated. markets setting up for a doozy tomorrow. rising flag (bearish) formed since 2pm today broke and this is the 3rd leg down. might be an exhaustion sell off tomorrow as this leg might extend with its own 3 legs. We are testing 900 on the SPX this week.
go! go! go! go!
to tell you the truth it is getting long in the tooth. I see a falling wedge on that chart and that is bullish for the interm. maybe a consolidation for a day or two?
if SPX doesn't break 930 today then the rally dies here. If it does we go to 960.
nah too old. its a good yard stick but don't plan investments based on it. to many variables are missing and a lot of new ones are in play.
the commonalities.
there is still greed. traders and bankers still think they did nothing wrong and are being punished for a few bad eggs. they blame public investors, homeowners, everyone else.
the public as a whole wants socialism. they think the government will save them. unknowing that they are entwined in the government. they aren't being saved as much as thy are postponing the suffering.
governments are stupid. the ideas don't have to make sense the parties just have to come to a compromise about them and they think it will be successful.
bond markets haven't changes. they are the yard stick through all this. what regulation or deregulations have changed the bond market. its the least changed market. probably because thy are boring to the common investor.