Money and Finance
- Bill Gross – February 2013 Investment Outlook: Most ‘medieval’
Link to: Most ‘Medieval’So for those of you who don’t live in Washington State or Colorado or others who are a little miffed at this example, let’s just put it this way. P/Es of 3 or P/Es of 15 or P/Es of 0 are intimately connected to the amount...
- Bill Gross – January 2013 Investment Outlook: Seesaw Rider
I am amazed at the fascination and emphasis placed on the u-rate during employment Fridays. Bond prices will move (in some cases by points) with a minor up or down change in unemployment relative to expectations, but when it comes to the third little...
- Bridgewater On The Fed's Dilemma
Via Zero Hedge: In the old days central banks moved interest rates to run monetary policy. By watching the flows, we could see how lowering interest rates stimulated the economy by 1) reducing debt service burdens which improved cash flows and spending,...
- Hoisington Q2 2013 Letter
The secular low in bond yields has yet to be recorded. This assessment for a continuing pattern of lower yields in the quarters ahead is clearly a minority view, as the recent selling of all types of bond products attest. The rise in long term yields...
- Hussman Weekly Market Comment From May 21, 2007: How Much Do Interest Rates Affect The Fair Value Of Stocks?
In recent months, I've used a wide variety of analytical methods (discounted cash flows, normalized earnings, price/peak earnings calculations, etc) to show that stocks are currently priced to deliver unusually poor long-term returns – stated simply,...
Money and Finance
Bill Gross – October 2013 Investment Outlook: Survival of the Fittest?
But if QE is soon to be out, and guidance soon to be what remains, I think investors should listen and invest accordingly. Not with total innocence, but sort of like a totally hyena-aware lion cub – knowing there’s bad things that can happen out there in the jungle, but for now enjoying the all clear silence of the African plain. In bond parlance, the all clear sign would mean that the Fed believes what it says, and if their guideposts have any credibility, they won’t be raising policy rates until 2016 or even beyond. The critical question to ask in terms of the level and eventual upward guide path of the policy rate is how high a rate can a levered economy stand? How much wood can a woodchuck chuck? How high a rate can a homebuyer handle? No one really knows, but we’re beginning to find out. The increase of over 125 basis points in a 30-year mortgage over the past 6–12 months seems to have stopped housing starts and importantly mortgage refinancings in its tracks. It was the primary “financial condition” that Chairman Bernanke cited in his September press conference that shifted the “taper to a tinker to a chance” that maybe they might do something next time.
The 30-year mortgage rate of course is connected to the policy rate and its pricing in forward space. All yields in composite are what an economy has to hurdle in order to grow at historically hoped-for rates at 2–3% real and 4–5% nominal: Treasury yields, mortgage yields, corporate yields and credit card yields, all in composite. Ray Dalio and company at Bridgewater have the concept down pat. The objective, Dalio writes, is to achieve a “beautiful deleveraging,” which assumes minimal defaults and an eventual return of investors’ willingness to take risk again. The beautiful deleveraging of course takes place at the expense of private market savers via financially repressed interest rates, but what the heck. Beauty is in the eye of the beholder and if the Fed’s (and Dalio’s) objective is to grow normally again, then there is likely no more beautiful or deleveraging solution than one that is accomplished via abnormally low interest rates for a long, long time. It is PIMCO’s belief that Yellen, Woodford and Dalio are right. If you want to trust one thing and one thing only, trust that once QE is gone and the policy rate becomes the focus, that fed funds will then stay lower than expected for a long, long time. Right now the market (and the Fed forecasts) expects fed funds to be 1% higher by late 2015 and 1% higher still by December 2016. Bet against that.
- Bill Gross – February 2013 Investment Outlook: Most ‘medieval’
Link to: Most ‘Medieval’So for those of you who don’t live in Washington State or Colorado or others who are a little miffed at this example, let’s just put it this way. P/Es of 3 or P/Es of 15 or P/Es of 0 are intimately connected to the amount...
- Bill Gross – January 2013 Investment Outlook: Seesaw Rider
I am amazed at the fascination and emphasis placed on the u-rate during employment Fridays. Bond prices will move (in some cases by points) with a minor up or down change in unemployment relative to expectations, but when it comes to the third little...
- Bridgewater On The Fed's Dilemma
Via Zero Hedge: In the old days central banks moved interest rates to run monetary policy. By watching the flows, we could see how lowering interest rates stimulated the economy by 1) reducing debt service burdens which improved cash flows and spending,...
- Hoisington Q2 2013 Letter
The secular low in bond yields has yet to be recorded. This assessment for a continuing pattern of lower yields in the quarters ahead is clearly a minority view, as the recent selling of all types of bond products attest. The rise in long term yields...
- Hussman Weekly Market Comment From May 21, 2007: How Much Do Interest Rates Affect The Fair Value Of Stocks?
In recent months, I've used a wide variety of analytical methods (discounted cash flows, normalized earnings, price/peak earnings calculations, etc) to show that stocks are currently priced to deliver unusually poor long-term returns – stated simply,...