Tue 8 Aug 2006
To see the other side of the argument, check out Bill Gross’s latest Investment Outlook. He calls the end of the bond bear market and gives some good background on why he thinks so.
Recession/no recession is really a faux decision to be entertaining at bond market turning points. Any number of cyclical histories point toward bond market prices bottoming ? and the Fed peaking ? as the economy downshifts into second or first gear as opposed to breaking to a full stop.
Gross obviously benefits from calling a bond bull market (he manages bond funds after all) and he is not typically going too far astray from mainstream ideas… but he’s a big thinker and manages over $500 billion for a reason.
You can invest with Gross via PIMCO or via the much-less-well-known Managers Bond Fund (MBDFX). Managers basically invests in the same things as the PIMCO funds, but gets away with charging much lower fees because they don’t advertise… if you’re looking for a bond fund, Gross and his team do very well.
Managers was formerly known as the Fremont Bond Fund until they changed the name last year. For gambling buffs, that’s Fremont with one ‘e’, like the casino where Gross played blackjack back in the day.
August 8th, 2006 at 8:27 am
Thanks for this article–intriguing ideas. And, I have to say that I’m very pleased that my simplistic reasoning regarding the bond market has been backed up by Bill Gross. The reasons why I saw the bond market heading for a positive run up (enough for me to take action and nearly double my bond position) are:
1) Fed seems to be slowing rate increases at last–I think it’s best not to try to time the peak, so I’m getting in now when they are clearly showing signs of slowing, if not stopping;
2) Other markets like stocks and gold aren’t as attractive to investors, meaning there’s less “competition” which allows for the possibility of fuel being added to the fire if bonds start cooking;
3) My brief analysis of the charts shows me that bonds are positioned to run up in the near future (next 6 months), a position that’s encouraged by the Fed and other market factors (this could be a case of me seeing what I want to see in the charts, so don’t read too much into this reasoning!);
4) Keep in mind that bonds are a “major investment class” and something even little old ladies in Pioria know about, thus the pool of potential bond buyers is very large, especially if there is an exodus from the equities market;
5) Finally, it’s time for a rebalancing for me–I’ve had three wonderful years of gains both on US and International index funds and I feel that they topped in April and haven’t shown much inclination to get back to where they were in April, so I’m scaling back my positions a bit to lock in some of the gains I procured over the last three years. Bonds are not my default position for “locking in gains from the stock market”, but they are when bonds start looking good!
Back to Mr Gross, I especially liked his revelation about the housing prices peaking then precipitously falling 3 years after the Fed rate bottoms out (June 2003 Fed rate bottom followed by the July 2006 peak in housing prices). I want to capture hundreds of these little nuggets of info, and if possible have them bubble to the surface at the right time. Wouldn’t it be great if there was software out there that could sense the kind of move you’re making in the market and pop up a preset collection of “Did you consider…” statements. Imagine it’s January of this year and I was thinking of increasing my investment in REITs. Before I clicked “buy”, a message would appear reminding me that it had been 2.5 years since the Fed rate bottomed and allowed me a chance to reconsider and back out of my buy order. Since this software doesn’t exist, we’ll just have to keep all these items in mind and chart out our positions as best as we can…
August 8th, 2006 at 10:07 am
You want a popup video for your memory?
[John sitting at a computer about to click “buy 100 shares of ‘IBC Brands’ at market”…]
Blooop! “Did you know that IBC product Wonderbread appeared in the movie Talledega Nights with Will Farrel?”
Blooop! “IBC product Drake’s Coffee Cakes appeared prominently in a 1996 episode of Seinfeld.”