Gross Says Job Gains Mean 50% Odds of December Fed Taper – Bloomberg 12-06-13

Salient to Investors:

Bill Gross at Pimco said:

  • Payroll growth in November signals at least a 50 percent chance the Fed will taper in December as it clearly wants out, but must be careful given the tepid growth of 2 percent.
  • The median analyst predicts the Fed will taper to $70 billion from $85 billion at its March 18-19 meeting.
  • Pimco remains focused on buying debt with shorter maturities because they are less susceptible to higher interest rates – the 2-yr yield has been relatively stable for a long time.
  • The Fed will keep its target rate for overnight funds in a range of zero to 0.25 percent until 2016.

Mohamed El-Erian at Pimco said most on the FOMC are worried about being experimental for so long, so this strong jobs report makes the normalization process easier.

Read the full article at http://www.bloomberg.com/news/2013-12-06/gross-says-job-gains-mean-50-odds-of-fed-tapering-in-december.html

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America’s Role as Consumer of Last Resort Goes Missing – Bloomberg 12-01-13

Salient to Investors:

The smallest US current-account deficit since 1999 shows the US is a lesser supporter of global growth than in the past. Exploration and production are adding to growth, reducing spending on imported energy, cheaper fuel and raw materials are boosting manufacturing, making the US more of a competitor to emerging-markets nations and less a reliable consumer of their goods.

Manoj Pradhan at Morgan Stanley said global growth is slowly becoming more of a zero-sum game and US growth is not reverting to the pre-crisis model, which created lift for everyone else.

Gustavo Reis at Bank of America Merrill Lynch said a 1 percent pickup in US growth is boosting expansion elsewhere by closer to 0.3 percent versus 0.4 percent previously. Reis said consumption will climb 2.2 percent in 2014, up from 1.8 percent in 2013, but property investment will rise 18 percent.

The median economist predicts the US will grow 2.6 percent in 2014 and 3 percent in 2015 versus 1.7 percent in 2013, and expects tapering to begin in March 2014.

The IMF predicted in October that the developing economies would grow by 4.5 percent in 2013, the slowest pace since 2009 and well below their average for the past decade.

Raghuram Rajan at Reserve Bank of India in October said everyone is worried about a global storm, and investors typically do not pay enough specific attention to individual economies during periods of stress.

Michael Shaoul at Marketfield Asset Mgmt expects some emerging markets will see further capital outflows in coming months as investors separate the good countries from bad. Shaoul says the bear market in emerging markets has not yet bottomed, especially in Brazil and India.

The Institute of International Finance predicts private capital flows to emerging markets will decline to $1 trillion in 2014 from $1.2 trillion in 2012.

The IMF said Americans accounted for 22 percent of worldwide GDP in 2013, versus 31 percent in 2000, while China tripled its share to 12 percent.

An average of 7.3 million barrels of oil a day were produced in the US during the first 8 months of 2013 versus 5 million barrels a day in 2008, the biggest multiyear rise since the country’s oil production peaked in 1970.

HIS said the US may improve its trade balance by more than $164 billion a year by 2020 because of the declining need for energy imports and the growing competitive edge for US-based energy-intensive industries – equal to a third of today’s current-account gap.

Christof Ruehl at BP said US energy and manufacturing trends bring significant improvement in the US current account and will go a long way in rebalancing the global economy.

David Woo at Bank of America says improvements in fiscal and trade imbalances make the US the most-improved industrial economy of 2013.

Citigroup predicts a reversal of the 50-yr decline in manufacturing’s share of GDP, helped by more-competitive worker wages. Boston Consulting Group said 54% of manufacturers with sales topping $1 billion are planning to bring back factory lines from China or will consider it, versus 37 percent in February 2012.

Mohamed El-Erian at Pimco says if the US can fire itself up, having repaired bank balance sheets and begun to tap corporate cash piles, it would be a net positive for the world.

Andrew Kenningham at Capital Economics said gains in US equities and sustained economic growth improve financial conditions globally, because the US is still the major player.

Stephen L. Jen and Fatih Yilmaz at SLJ Macro Partners said the US provided the thrust for worldwide growth in every recovery during the past 40 years – 48 percent of the global economy’s expansion in 1999 after Asia’s financial crisis – and will lead the way again because of US innovation and tech prowess.

Read the full article at http://www.bloomberg.com/news/2013-12-01/consumer-of-last-resort-missing-as-u-s-leaves-the-world-behind.html

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Pimco’s El-Erian: Fed Taper Would Take ‘Safety Net’ From Risk Assets – MoneyNews 11-27-13

Salient to Investors:

Mohamed El-Erian at Pimco said:

  • The Fed’s determination to taper puts more risk in risk assets, such as stocks.
  • The safety margin built into risk assets is much less now.
  • The Fed is wary of upsetting financial markets, as it sees financial market strength as a key to boosting the economy. The Fed cannot get to its economic objectives without going through the asset markets, so it feels obliged to continue to support the asset markets, not as an end in itself, but as a means to an end.
  • The Fed’s October minutes cited modest growth now but faster growth ahead – the same position it has taken virtually every time since the 2008-09 financial crisis.
  • It is very difficult to predict when tapering will begin, especially with a FOMC that is all over the place, but it will absolutely begin over the next 12 months.
  • Buy bonds at the short end of the yield curve and sell at the long end.

Sam Coffin at UBS Securities said it sounds like the Fed is moving closer to tapering and wants to signal it will stay easy after the tapering has begun.

Read the full article at http://www.moneynews.com/Economy/El-Erian-Fed-risk-taper/2013/11/21/id/537920

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Pimco’s El-Erian Sees Global Growth at About 3% in 2014 – Bloomberg 11-26-13

Salient to Investors:

Mohamed El-Erian at Pimco said:

  • The global economy will expand 2.75 percent to 3.25 percent in 2014.
  • The big question is less the next 12 months and more what comes after, given we are being sustained by experimental, untested policies. The US and Japan have outperformed other markets because of Fed stimulus programs.
  • The Fed will begin tapering in the next 6 to 12 months because continuing QE involves costs and risks.
  • The Fed will keep interest rates at zero and become more aggressive with guiding the markets on its moves.

Read the full article at http://www.bloomberg.com/news/2013-11-26/pimco-s-el-erian-sees-global-growth-at-about-3-in-2014.html

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U.S. Stocks Fall After Debt Deal as IBM, Goldman Tumble – Bloomberg 10-17-13

Salient to Investors:

Disruptions to the economy prompted speculation the Fed would maintain the pace of its $85 billion in monthly bond purchases. BlackRock Inc. and Pacific Investment Management Co. say the Fed will postpone tapering as a result of the debt-ceiling debate.

Russ Koesterich at BlackRock said the disruption and uncertainty will result in slower tapering.

Mohamed El-Erian at Pimco said the Fed may now have no choice but to stay longer in its intense policy experimental mode due both to the likelihood of weaker data and a perceived need to take out insurance for the economy against future political dysfunction.

The S&P 500 is at 16.5 times earnings with the 2nd broadest year-to-year gains since 1990.

Read the full article at http://www.bloomberg.com/news/2013-10-17/u-s-stock-index-futures-drop-as-debt-ceiling-raised.html

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Pimco’s Gross Says Fed Will Still Taper After Jobs Report – Bloomberg 09-06-13

Salient to Investors:

Bill Gross at Pimco said the Fed is committed to taper, which will be lite: it will probably reduce its assets purchases by $10 billion and focus on Treasury bonds.

Mohammed El-Erian said there are no great choices for the Fed at this point, and today’s jobs number tells you that we’re still in second gear.

Read the full article at  http://www.bloomberg.com/news/2013-09-06/pimco-s-gross-says-fed-will-taper-despite-jobs-report.html

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El-Erian Says Emerging Market Woes to Create U.S. Headwinds – Bloomberg 08-29-13

Salient to Investors:

Mohamed El-Erian at Pimco said:

  • Weakening emerging-market growth and spiraling currencies risk creating headwinds for a recovering US economy. Longer-term, we should care due to the feedback loop to the US.
  • We will see a tightening of financial conditions to markets, with growth more challenged and the ability of US companies to get top-line growth from emerging markets less going forward.
  • For many emerging nations, capital is flowing out and putting them under tremendous pressure. Some countries learned the lessons from the previous crisis and have self-insured tremendously, but others maintained twin deficits, whose growth dynamics are low and have limited reserves – e.g. Turkey.
  • The Fed will probably reduce its Treasury purchases rather than mortgage bonds.

65 percent of economists expects the Fed to taper at its September meeting.

Stocks in Southeast Asia are falling at the fastest pace in 12 years relative to global equities.

Read the full article at  http://www.bloomberg.com/news/2013-08-29/el-erian-says-emerging-market-woes-to-create-u-s-headwinds.html

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Obama Focuses on Risk of New Bubble Undermining Broad Recovery – Bloomberg 08-18-13

Salient to Investors:

US companies have issued $241 billion in junk bonds this year, more than twice the amount during the same period in 2007.

US stocks are near record highs. Investors’ use of borrowed money to buy stocks is up one-third in the past year to a near record.

Housing prices are surging in areas such as Las Vegas and Phoenix.

Jobless benefits last week were the lowest in almost six years. Household debt is down to mid-1980s levels.

Roberto Perli at Cornerstone Macro said Obama’s bubble caution is a legitimate economic concern but not motivated by consideration of imminent risk. Both Summers and Yellen can claim bubble-battling expertise.

Michael Kumhof and Romain Ranciere at the IMF said in 2010 that when the wealthy lend ever-greater amounts to less-affluent Americans, those bigger debt loads can trigger financial crises.

Jared Bernstein said the 1990s dot-com bubble and the housing boom of the next decade were a shampoo economy: bubble, rinse, repeat. Bernstein said implicit in Obama’s comments is the idea that this has been very damaging in the past.

Adam Posen at the Peterson Institute for Intl Economics is concerned that premature bubble concerns could cause Obama to get caught up chasing this ghost and name a Fed chairman less likely to aggressively use monetary policy tools. Posen said the feeble economy is evidenced by money supply remaining at its lowest level at least 5 decades.

Mohamed El-Erian at Pimco sees artificial pricing in virtually every asset class.

Fed Governor Jerome Powell said in June that home prices are back to fair valuation.

Fed Governor Jeremy Stein said these prolonged low interest rates can create the incentive to take on greater duration or credit risks, or to employ additional financial leverage.

Fed Governor Sarah Bloom Raskin said asset bubbles are a feature of our financial landscape, and what happened before could happen again.

Read the full article at  http://www.bloomberg.com/news/2013-08-19/obama-focuses-on-risk-of-new-bubble-undermining-broad-recovery.html

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Fed’s Bullard Urges Wait for 2nd-Half Data Before Tapering – Bloomberg 08-02-13

Salient to Investors:

James Bullard at FRB of St. Louis said the Fed should wait for evidence the labor market and economy are strengthening before tapering purchases.

Bullard said the Fed will probably hold mortgage-backed securities among its assets longer than it had expected and make a decision on what to do in two years.

Half of 54 economists surveyed last month expect tapering to begin in September.

Mohamed El-Erian at Pimco said today makes it less likely the Fed tapers in September as the labor market continues to improve at a frustratingly modest pace, while some indicators suggest improvement is very fragile.

Esther George at FRB Kansas City continues to warn that record accommodation may create financial and economic imbalances and increase long-term inflation expectations, and cautioned about excessive use of margin accounts at broker-dealers and leveraged loans, or packages of higher-risk commercial loans.

Read the full article at  http://www.bloomberg.com/news/2013-08-02/fed-s-bullard-urges-wait-for-2nd-half-rebound-before-tapering.html

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Pimco’s Gross Says Fed Will Tighten Policy in 2016 at Earliest – Bloomberg 07-21-13

Salient to Investors:

Bill Gross at Pimco said the Fed won’t tighten monetary policy until 2016 at the earliest, and added to mortgage securities in June.

Mohamed El-Erian at Pimco said 10-yr Treasury yields may drop to 2.2 percent in 2013.

Read the full article at  http://www.bloomberg.com/news/2013-07-21/pimco-s-gross-says-fed-will-tighten-policy-in-2016-at-earliest.html

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