Gross’s Last Defiance Stuns Allianz, Pimco in Janus Move – 09-28-14

Salient to Investors:

  • Kurt Brouwer at Brouwer & Janachowski said Pimco have mishandled their corporate decisions but from a money-management perspective he has no issue with Pimco.
  • Pimco’s Total Return Fund is on track to underperform a majority of rivals for the third year in four.
  • Sanford Bernstein said Gross’s departure may mean asset withdrawals of 10 percent to 30 percent for Pimco.

Read the full article at http://www.bloomberg.com/news/2014-09-29/gross-s-last-defiance-stuns-allianz-pimco-in-janus-move.html

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Yellen Takes the Good Greenspan, Leaves the Bad – Bloomberg 09-29-14

Salient to Investors:

  • Michael Gapen at Barclays Capital said the late 1990s was a very good period for the US economy, with Greenspan making the correct call on monetary policy; but the general consensus is that Fed policy in the run-up to the housing bust prior to the 2007-2009 recession was incorrect. Gapen said there may be global disinflationary trends.
  • James Bullard at FRB St. Louis said the 2004 to 2006 tightening cycle was so mechanical and predictable that it fostered asset-price bubbles.
  • William C. Dudley at FRB New York believes it might be necessary to raise inflation to the Fed’s 2% target by letting the economy run hot for a while to push inflation back up to the Fed’s objective. Dudley cites a sea change in the way the Fed now thinks about asset bubbles: it now tries to identify asset bubbles in real-time instead of, under Greenspan, believing they are unpredictable and so waiting until they burst and then cleaning up afterwards.
  • Tobias Adrian at FRB New York and Nellie Liang at the Fed warned that accommodative monetary policy could contribute to the buildup of financial vulnerabilities and hence increase risks to financial stability.
  • Michael Feroli at JPMorgan Chase said Yellen suggested earlier this month that she would not emulate Greenspan’s methodical approach to raising interest rates.
  • Richard Clarida at Pimco said the Fed will try to thread the needle by wanting a gradual pace of rate hikes, while not wanting people to get too relaxed as they did with measured pace.

Read the full article at http://www.bloomberg.com/news/2014-09-29/yellen-aims-to-mimic-greenspan-on-jobs-avoid-misfire-on-bubbles.html

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BlackRock Warns on Euro QE as Pimco Bets Against Volatility – Bloomberg 09-23-14

Salient to Investors:

Owen Murfin at BlackRock said:

  • Bond investors have been too hasty to bet the ECB will buy sovereign debt
  • The ECB’s target of increasing its balance sheet by $1.29 trillion is ambitious and the poor take-up of new cheap loans offered to banks is no guarantee of QE – a second tranche in December is likely to be larger.
  • Be cautious on periphery sovereign bonds as they are pricing in too much of a probability of sovereign QE in Europe. They have rallied without any pullback more on optimism about a very accommodative ECB rather than massive fundamental improvement.

Andrew Balls at Pimco said:

  • The weakening euro-area economy makes QE more likely even while ECB policy has reduced the risk of another regional debt crisis.
  • The credibility of the ECB’s inflation target is in doubt so a full-blown QE program would be their most practical approach.
  • Pimco is overweight on peripheral securities, especially Spain and Italy
  • Euro-area volatility will be suppressed as the ECB rolls out its stimulus measures.

Read the full article at http://www.bloomberg.com/news/2014-09-23/blackrock-cautions-on-euro-qe-as-pimco-bets-against-volatility.html

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Pimco’s Gross Says Weak Credit Creation Jeopardizes U.S. Growth – Bloomberg 09-03-14

Salient to Investors:

Bill Gross at Pimco said:

  • Insufficient credit creation with 2% economic growth jeopardizes US growth because our credit-based financial economy depends on an ever-expanding outstanding level of credit for its survival.
  • If the credit growth is more than 4.5% a year, then private and public sectors must create $2.5 trillion of new debt per year to pay for outstanding interest.
  • Artificially low interest rates and artificially high stock prices offer historically unacceptable risk relative to return unless the policy rate is kept low, now and in the future, and the Fed does not overstep its interest rate line.
  • Longer term, economic growth depends on investment and a return of capitalistic animal spirits.

Fed funds futures indicate a 50+% chance the Fed will raise rates to at least 0.5% in July 2015.

Read the full article at http://www.bloomberg.com/news/2014-09-03/gross-says-growth-undershooting-as-credit-creation-disappoints.html

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Pimco Says External Growth May Lift ‘Not Stellar’ Asia – Bloomberg 12-17-13

Salient to Investors:

Ramin Toloui at Pimco said:

  • Asian growth is stabilizing but not stellar but may receive a boost in 2014 as developed markets accelerate.
  • Asia’s trajectory will continue to be shaped critically by the growth path in the U.S. and Europe
  • China’s growth in the next decade requires a rebalancing of the economy toward household demand, but near term, its performance will be dominated by the dialing back and forth of the credit conditions by policymakers.

Robert Mead at Pimco said limited evidence of any non-mining investment, except in housing, means Australia’s growth outlook is weak, and recently announced cuts in manufacturing will also hurt growth in the next few years. Mead expects the Australian dollar to depreciate further.

Economists forecast 4 of Asia’s 5 largest economies outside Japan are slowing as regional expansion stalls at 6.23 percent for a second year.

Read the full article at http://www.bloomberg.com/news/2013-12-17/pimco-says-external-growth-may-lift-not-stellar-asia.html

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U.S. Rate Rise Sends High-Dividend Stocks Lower: EcoPulse – Bloomberg 12-12-13

Salient to Investors:

Brad Kinkelaar at Pimco said:

  • The underperformance of many high-dividend stocks in the past 8 months shows a sentiment shift already is under way. If rates continue to rise through 2014, albeit gradually, telecom, utility and REITs should continue to underperform the market.
  • Look for stocks with attractive dividends, particularly that will benefit from global growth – half the companies in his funds are based outside the US.
  • Avoid the most expensive parts of the domestic market, including shares hardest hit by the increase in interest rates, like toll-road companies in China, Brazil and Italy and US retailers.
  • Money managers with dividend-paying strategies flocked into a scarce menu of attractive-yielding stocks in the US, causing their share prices to increase significantly, but the reverse is now happening.

34 percent of economists expect tapering in December. The median economist predicts the 10-yr T-yield will rise to 3.37 percent by the end of 2014.

Benjamin Brodsky at BlackRock said tapering is inevitable and very likely in 2014 so the key T-yield could rise to a fair value of 3.7 percent by the end of 2014, significantly surprise the market, and add volatility not only in Treasuries but to other asset classes. Brodsky said the Fed will be losing one of its essential tools to control the long end of the market amid signs the recovery is strengthening.

Rob Morgan at Fulcrum Securities said large-cap dividend-paying stocks will be hurt as yields on 10-yr Treasuries continue their rise since May, though swapping equities for fixed-income securities is not imminent.

Jim Stellakis at Technical Alpha said investors have become more aggressive about pulling money out of the dividend index, which is in a general downtrend relative to the S&P 500 total-return index, with lower peaks and troughs indicating people are becoming more impatient and selling sooner. Stellakis said the dividend index falling below the March 2012 trough will indicate further deterioration in investor sentiment.

Eric Teal at First Citizens BancShares said we are in a transition period as equity investors adjust to a rising-rate environment, and as the US economy moves into later stages of the expansion that began in June 2009, investors need to be more selective about the type of dividend-paying stocks they purchase, and differentiate between companies with high-dividend yields relative to the market and those whose payouts may be poised to increase. Teal seeks stocks with growing dividends that are leveraged to an economic recovery, especially on a global basis, like the industrials, which have expanded payouts in recent years. Teal said Treasuries approaching 4 percent will be a trigger for asset-allocation models.

James Bullard of the FRB St. Louis said any tapering should be modest to account for low inflation, and should inflation not return toward target, the Fed could pause tapering at subsequent meetings.

Read the full article at http://www.bloomberg.com/news/2013-12-13/u-s-rate-rise-sends-high-dividend-stocks-lower-ecopulse.html

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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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Treasury Yields Fall From Highest Since September Amid Fed Bets – Bloomberg 12-06-13

Salient to Investors:

Paul Montaquila at Bank of the West said the jobs number was expected but not a blockbuster number, and the steady diet of better numbers are not enough to give the market the clarity they want.

Sean Simko at SEI Investments said the market was pricing in a jobs number like we got, and does not change the picture of the Fed tapering.

34 percent of economists now believe the Fed will begin tapering this month.

Bill Gross at Pimco the pace of payroll growth in November signals at least 50 percent chance of Fed tapering this month as it is clear the Fed wants out. Gross said the Fed still has to be careful given growth at only about 2 percent.

Scott Minerd at Guggenheim Partners said the market is fairly priced and the Fed will be on hold at least until January to see more data – tapering will likely begin in March.

The 14-day relative strength index for the benchmark yield at 66 is approaching the 70 threshold that signals it may have risen too much and be about to change direction.

Read the full article at http://www.bloomberg.com/news/2013-12-06/treasuries-fall-as-gain-in-u-s-jobs-spurs-bets-on-stimulus-cuts.html

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Gross Says Central Bank Cash Influx Raises Global Assets’ Risk – Bloomberg 12-03-13

Salient to Investors:

Bill Gross at Pimco said:

  • The unprecedented cash added to the financial system by central banks is raising the risk of a slide in global asset prices.
  • Global economies and their artificially priced markets are increasingly at risk, but the unwinding may occur gradually.”
  • The Fed, BoJ, ECB and BoE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high-quality assets.
  • Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth.
  • Pimco is focused on shorter-maturity Treasuries, mortgage and corporate debt that will benefit by the Fed keeping its target rate for overnight loans near zero for several years.
  • Monetary and fiscal policies have not produced the real growth that markets are priced for, so investors at the margin will begin to prefer the comforts of a less risk-oriented migration.
  • Expect constant policy rates until at least 2016 in the US.
  • Front-end load portfolios and don’t fight central banks, but be afraid.

Read the full article at http://www.bloomberg.com/news/2013-12-03/gross-says-central-bank-cash-influx-raises-global-assets-risk.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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