Bill Gross, the former head of Pacific Investment Management (PIMCO), the largest bond fund in the world, who left his former employer to go to Janus Funds has some sobering and to my way of thinking, commonsense advice for investors. When he left PIMCO there was talk of his abrasive style with employees, and, frankly, some talk of his grip on reality. I suspect his views on the future may not have been consistent with the views of the largest bond fund in the world. After 35 years of a bond bull market, or any long term bull market for that matter, attitudes become entrenched and investment advice becomes rote. This is the phenomenon that eventually puts "everyone" on the same side of the trade, and causes the massive dislocations in finance and economies with the unwind.
Gross may be right on the immediate future. That future for the next couple years. The action in the bond market, specifically US treasuries, and interest rates in Europe for the last few months have not been congruent with an economic recovery. Of course we have known for some time that the EU is in trouble, and the troubles keep recurring, think of Greece. But the hope has been that the U.S. economy would continue to be strong and eventually pull the rest of the world up with US. This has been a source of recent strength in the USD, and weakness in the other major currencies. Not to mention the intentional devaluations in other major nations and currencies, thinking of Japan recently and China for years.
But the world is facing headwinds that even zero interest rate policies may not overcome. First to mind is the demographic challenges on the order of the baby boom in the western world and most of Asia. And the large debt burdens of many countries must resolve eventually.
Timing is everything. I trade flexible positions but am always on alert for the direction of the markets in general. Such being a function of "sentiment" which is a complex amalgam of positions in place as well as outlook for the future.
The recent action in the precious metals, even with the recent strength in the US Dollar, may be a presentiment for the future. Whether that means US Dollar weakness in the future, or just another round of weakness for all currencies and flight to safety.
Listen to Mr. Gross: