Billionaire Paul Singer: China Crash Is ‘Way Bigger Than Subprime’ – Bloomberg Business 07-15-15

Salient to Investors:

Paul Singer at Elliott Management said China’s debt-fueled stock market crash is way bigger than the US subprime mortgage crisis but may not be enough to cause a global financial market meltdown.

Bill Ackman at Pershing Square Capital Mgmt said China is a bigger global threat than Greece by far, their stock market looks worse than the US in 2007, and China’s lack of transparency and questionable economic statistics are concerning.

Jeffrey Gundlach at DoubleLine Capital said China’s stock market compares with the US Nasdaq in 1999, 2000, and is far too volatile and murky to invest in.

Mary Erdoes at JPMorgan Asset Mgmt said China’s equities markets are completely disassociated with their economy. 25 years of 7 percent growth seen by no other country, including the US.

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Gundlach Says China Stocks ‘Worth a Ride’, India Favorite – Bloomberg 09-09-14

Salient to Investors:

Jeffrey Gundlach at DoubleLine Capital said:

  • The Shanghai Composite Index is worth a speculation, but his favorite stock market long-term is India.
  • Yields on 10-yr US Treasuries may reach 2.65% this year.
  • Does not own any foreign currency bonds – the biggest risk in a rise in yields on German and French debt.
  • It is foolish to own currencies other than the US dollar
  • Prefers high-grade corporate and government bonds to junk debt.

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How Memphis Firm Decoded Bond Secrets Mystifying Wall Street – Bloomberg 06-30-14

Salient to Investors:

Jim Vogel and Chris Low at  FTN Financial said:

  • Treasuries are years away from reverting to pre-financial crisis levels as growth remains weak and several hundred thousand people fall out of the labor force.
  • Yields will end 2014 at 2.55 percent versus the median estimate of 3.07 percent. Bloomberg show the consensus quarterly forecasts for 10-year yields made 12 months forward have overestimated yields by an average of 0.68 percent since January 2009.
  • Some of the growth we wish we could go back to was far more frail than most people realize.

Priscilla Hancock at JP Morgan Asset Mgmt expects the 10-year yield to end 2014 at 3 percent.

Jeffrey Gundlach at Doubleline Capital said the aging population, less spending, slower inflation and greater demand for low-risk, income-producing investments will keep yields low for years.

Jim Bianco at Bianco Research said traders are finding it too expensive to keep shorting bonds so are being forced to cover: he said growth is absent, and expects 10-year yields will fall to 2.25 percent in 2014. Bianco said the relationship between nominal growth and interest rates is not as strong as traders think it is.

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Gundlach Shows Why Betting Against Treasuries Is a Fool’s Game – Bloomberg 02-03-14

Salient to Investors:

Jason Brady at Thornburg Investment Mgmt recently bought Treasuries as yields approached a 2-yr high of 3 percent. Brady said every single strategist decided towards the end of 2013 that stocks were the best thing in the world and bonds were the worst thing in the world and that rates were certainly going higher and anybody who was otherwise is crazy. Brady said the outlook is so dire that the Fed may need to reverse course and add more stimulus, benefiting bonds.

The performance of Treasuries is confounding forecasters who predicted a second consecutive year of losses with their best annual start since 2008, returning 1.6 percent in January.

Jeffrey Gundlach at DoubleLine Capital said the market entered 2014 with a greater consensus than any year that I can remember; that the dollar has to do well, gold is for losers and bond yields will rise. Gundlach predicts yields will fall in 2014, with demand rising from investors such as banks seeking high-quality collateral to meet new regulatory requirements and as a haven for others from political and economic turbulence in nations ranging from Turkey to Argentina.

The bets against 10-yr Treasuries by hedge-funds et al declined to as low as 58,000 contracts in January from a 19-month high of about 189,000 in November.

Strategists and economists have largely stopped boosting their estimates for how high yields will get in 2014 – at year-end at 3.42 percent since November.

Thomas Graff at Brown Advisory said the possibility of 10-yr yields moving a lot higher was predicated on an out-of-consensus economic scenario, and yet the consensus was for rates to move a lot higher. Graff favors government debt over credit-related assets such as corporate bonds for the first time since 2009.

David Rosenberg at Gluskin Sheff said the economy is on a moderate accelerating trend and the yield decline is temporary: yields will reverse and end the year at 3.5 percent to 3.75 percent as the economy improves. Rosenberg said we are coming out of a flight to quality on emerging markets, and that this is a blip rather than a long-term trend.

US yields are still higher relative to bonds from other major global economies, making them attractive on a relative basis: the extra yield over similar maturity German bunds reached 1.11 percent on Jan. 22, the most since July 2006 based on closing prices.

Vimal Gor at BT Investment Mgmt said on a cross-market basis, Treasuries are by far the best market and is betting on gains in 5-yr US Treasuries.

Fixed-income assets returned 1.57 percent in January, the best start to a year since at least 1997.

Sean Simko at SEI Investments said exogenous events and hiccups could continue, as in the debt ceiling, and investors remember what we just went through and uncertainty creates nervousness in the marketplace. Simko expects a slow and gradual move in yields.

James Camp at Eagle Asset Mgmt said he was a buyer at 3 percent as Treasuries are back as a safe haven.

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Great Rotation Seen Muted by Pension-Fund Demand: Credit Markets Bloomberg 11-13-13

Salient to Investors:

A shift by household investors from bonds into equities is being muted as pension funds and insurers boost fixed-income assets to match future obligations.

JPMorgan Chase and Milliman said US companies with the largest defined-benefit pensions raised allocations to fixed-income to 41.3 percent from 36 percent in 2010, life insurers are replacing maturing structured securities with corporate bonds, and sovereign-wealth funds are investing 90 percent of it into debt. JPMorgan said institutional investors own the vast majority of corporate bonds, controlling 90 percent of investment-grade securities and 75 percent of high-yield bonds.

Jeffrey Gundlach at DoubleLine Capital said that if there were this rotation by individuals from bonds into stocks and it created higher yields and stronger stock performance, it would quickly find a match on the other side of the trade from the institutional pension community. Gundlach does not think it is a runaway condition because it is difficult to believe that an aging investor population will increase their holdings in riskier assets.

There are 78 million US baby boomers – those born from 1946 to 1964.

Guy LeBas at Janney Montgomery Scott said a very large portion of the bond market can’t rotate out of bonds and into stocks because of their investment guidelines.

The decline in issuance of structured debt such as mortgage-backed securities has left fewer choices for investment managers. Sovereign wealth funds are increasing assets by $500 billion annually, boosting demand for fixed-income investments.

Matthew Duch at Calvert Investments said there is a continual need from the traditional fixed-income players, so the demand for fixed-income will always exist.

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Druckenmiller Says Fed Exit Would Be Big Deal for Markets – Bloomberg 09-11-13

Salient to Investors:

Stanley Druckenmiller said:

  • If the Fed were to end QE it would be a big deal for the financial markets, as indicated by the sell-off in bonds and emerging markets in the past few months on the mere hint that the Fed might taper.
  • Fed purchases have subsidized all asset prices, so completely stopping them would mean the market will fall.
  • He has very small investment positions, including long some Japanese equities and short the yen.
  • It is naive to say the next Fed chairman won’t matter because it is a really important appointment.

Jeffrey Gundlach at DoubleLine Total Return Bond Fund said the Fed is making a big mistake by moving ahead with its exit plan without pegging it more closely to market conditions.

Economists expect the Fed to taper Treasury purchases by $10 billion this month.

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Gross Caught in TIPS Trap Gundlach Sidestepped in Tumble – Bloomberg 07-03-13

Salient to Investors:

Morningstar says 10 percent of the TIPS market is owned by Pimco.

Jeffrey Gundlach at DoubleLine says TIPS are a disaster and a trap because unless inflation rises, all you have is interest rate risk, just like every other Treasury – it is an asset class that is exposed to investor surprise and disappointment.

Daniel Shackelford at T. Rowe Price said the narrowing in Treasuries/TIPS spread, or the break-even rate, shows investors viewed inflation as less of a threat in the short-term. Shackelford said inflation expectations haven’t budged after 3 or 4 years of hyper-easing and the expectation is for the Fed to become less accommodative – the worst news that the TIPS market could receive.

Jeremie Banet at Pimco said the contraction of the break-even rate shows that the market does not see the economic improvement the Fed is citing as a basis for tapering. Banet said interest rates are rising because people expect the Fed to be less accommodative, not because the economy is improving.

The change to the Fed’s asset purchases that Bernanke signaled by itself was too small to drive the decline in financial markets that followed, said Wynn at Western Asset. His closed-end fund has declined 7.5 percent this year through July 2, trailing 81 percent of peers.

Paul Wynn at Western Asset/Claymore Inflation-Linked Opportunities & Income Fund said much of the recent TIPS selling came from risk-parity funds that follow an asset-allocation strategy pioneered by Ray Dalio at Bridgewater Associates.

Tim McCusker at NEPC said risk-parity strategies are designed to provide higher returns in a variety of economic environments, but fare poorly on tightening or expected tightening of monetary policy.

Michael Mendelson at AQR said risk-parity investors are important TIPS investors, but not that important.

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Who Goes to Cash Shows Extent Bonds Will Become Bear Market – Bloomberg 07-01-13

Salient to Investors:

TrimTabs Investment Research and the Money Fund Report report bond funds saw $61.7 billion of withdrawals last week.

Market bears say yields barely exceed inflation, leaving little relative value in bonds as the global economy improves. Pimco, BlackRock, and DoubleLine Capital say the worst is over because the securities are fairly valued.

Richard Schlanger at Pioneer Investments says we are at an inflection point, and is investing in short-term floating-rate notes and non-agency mortgage-backed securities.

Real yields on 10-yr Treasuries are 1.09 percent versus 6.4 percent aggregate earnings yield of US stocks. The gap between inflation and 10-yr yields is half the 2.2 percent average for the past 20 years.

Michael Lillard at Prudential Financial said rates going higher clearly will impact growth and take some of the steam out of the housing – housing is most sensitive to interest rates and the mortgage rate has up a lot, not just because of Treasuries but because mortgage spreads have widened.

Jeffrey Gundlach at DoubleLine said July will not be the same as June, and there are profits to be made in the bond market before the end of the year.

Bill Gross at Pimco said 10-year T-yields may fall by 25 basis points as yields and spreads over Treasuries were too low 2 months ago and the Fed tilted over-risked investors to one side of an overloaded and over-levered boat, so stay calm.

Financial institutions need to buy as much as $5.7 trillion in safe assets including government bonds by 2020 to comply with Dodd-Frank and BIS.

Ashish Shah at AllianceBernstein said we are seeing an overshoot as it takes time for institutions to make decisions.

Peter Fisher et al at BlackRock said tapering is not Armageddon and is actually healthy because trillions of dollars of stimulus have failed to spur much credit growth and economic activity.

Martin Fridson at FridsonVision said Bernanke may have altered investors’ views about the Fed’s goals more than he expected and it is unwise to conclude that everyone who’s going to leave has already left.

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Global Bonds Dive for Second Month as Stocks Lose $2.7 Trillion – Bloomberg 06-30-13

Salient to Investors:

Binky Chadha at Deutsche Bank said the market had been pricing in that the Fed would normalize rates much more slowly than it has done historically, and the shock has spilled over across all of the asset classes.

The World Bank said the world economy will expand 2.2 percent in 2013 and the euro region will shrink 0.6 percent.

Seamus Mac Gorain at JPMorgan Chase expects the developed market sell-off to proceed at a far more measured pace over the remainder of 2013, while the position squaring in emerging markets has some way to go, not least because the degree of illiquidity in the sell-off has surprised.

Jeffrey Gundlach at DoubleLine Capital says the worst is over for Treasuries as stability returns to the stock and fixed-income markets.

Bill Gross at Pimco said bond yields and risk spreads were too low 2 months ago and the Fed tilted over-risked investors to one side of an overloaded and over-levered boat, so don’t panic.

Howard Ward at Gamco Investors said the markets needed to vent some steam and did, and Bernanke’s comments were seen as more hawkish than he expected.

In May, analysts cut 2013 earnings estimates for emerging-markets stocks by 3 percent, and raised estimates for MSCI developed-market companies 0.2 percent and 0.1 percent for the S&P 500.

Hayes Miller at Baring Asset Mgmt said we are not out of the woods, and while emerging markets are cheap relative to developed markets, earnings expectations continue to be downgraded fairly rapidly, while developed markets, particularly US and not so much Europe, are seeing upgrades.

Goldman Sachs, Morgan Stanley and Credit Suisse cut their gold forecasts in June as ETP holdings sank to a 3-year low. Societe Generale said investors may sell an additional 285 tons in 2013.

Georgette Boele at ABN Amro said gold does not generate income and is vulnerable to higher interest rates, while weaker data out of China and concerns about emerging markets have hurt the demand outlook.

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Gundlach to Gross Say Worst Probably Over for Treasuries – Bloomberg 06-27-13

Salient to Investors:

Bond managers are telling investors the worst may be over for T-bonds after 10-year yields rose to a 22-month high.

Jeffrey Gundlach at DoubleLine Capital says July will not be the same type of month and 10-yr yields will be meaningfully lower by the end of 2013 Gundlach said interest rates won’t increase because of the economic impact, such as in housing, where affordability has been radically changed following an increase in mortgage rates and home prices.

Bill Gross at Pimco said the Fed has historically been too optimistic about the economy, and says 10-year T-yields can go 0.25 percent lower. Gross likes 10-years, 5-years, and safe assets that are overyielded and underpriced.

William C. Dudley at FRB of New York said the Fed may prolong QE should the economy fail to meet the Fed’s forecasts.

Freddie Mac says the average 30-yr fixed mortgage rate is at 4.46 percent.

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