Now, this is not my message, but it seems to be a message that the folks at PIMCO (Pacific Investment Management Company, LLC) are making a concerted effort to get into the public domain. Their intentions may be pure and noble, but instilling doubt and uncertainty might also be a desirable after effect. Having said this, PIMCO Co-founder, Bill Gross (a.k.a. “The Bond King”), has built, not only a formidable organization, but an outstanding track record. He should be considered a credible source. Importantly though, they manage over $2 trillion in assets, mostly fixed income. They obviously want to hold those assets, in the face what appears to be the beginning of tough times in Bondland and the superior returns offered recently by the equity market.
These guys have been very visible in the media over the last ten days (see session 38)), and the message is fairly consistent–Fed policy has been at best ineffective, at worst a disaster. On Tuesday, June 4, Mr. Gross said, in effect, that the Fed’s low interest rate policy (QE) was a deterrent to business capital investment and economic growth (Video link –Bill Gross). I have a tough time getting to this idea, as I believed that low rates would incentivize investment and improve profitability. I have attached a link to a video where Gross explains his position to a degree and a copy of his June letter, which gets a bit weird. We have also attached a link to a piece by James Kostohryz (analyst, Seeking Alpha contributor) that addresses the eccentricities of the letter and offers a countering point of view. You decide.
Also on Tuesday, PIMCO Co-CIO and CEO, Mohamed El Erian did and interview with CNBC where he suggested investors “Walk, Don’t Run From Equities”(Video link). Again, this is another cautionary piece. Finally, I was greeted this morning by an article in CNBC’s online edition, “PIMCO Sees 60% Chance of Global Recession in 3 – 5 Years.” PIMCO operative, Samuel H. Parikh (Managing Director and Generalist Portfolio Manager) was the source of this revelation. So, they use the dreaded “R” word, actually, the really dreaded GLOBAL “R” word. Now, we know how easy and precise that it is to forecast the economy, let alone the global economy. Just look at what a great job the economists do on monthly and quarterly forecasts. Pardon my digression, but I find this constant, visible dribble of negative pronouncements from PIMCO to be a bit self-serving (of course, no one in the media would ever call them on it). I mean, for gosh sakes, the world is a scary place, I better keep my bonds.
Meanwhile, the correction continues and that is not a bad thing. Back in the day we use to call this “The Summer Doldrums.”
What do you think?
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