Recently in Bill Gross Comments Category

Again, nobody should be relying on forecasts in the distant future.  10 or 20 years are too many years.  You have to respect B, though.  Putting his street cred on the line to make these type of impossible guesses and even writing a book about it once.  Maybe he follows one of the trader's axioms. He doesn't care about being right.  He only cares about making money.

I'm not even 100% sure he uses his long term forecasts in his bond trades.  I'd stabbed that he does something along the lines of bond arbitrage and global macro trades.

One particular paragraph stood out to me in this month's newsletter:

Bet on Red.

Nothing new or insightful, but nice to see B speaking out against it.  I wonder if he has an ulterior motive for making such a comment...

It's like staring at a puzzle.  I've never incorporated "Policy Support" in my evaluation of investment opportunities.  I don't know.  Just doesn't sound objective enough.  How can I cram "Policy Support" into data tables and crank out a neat regression function?

These percentage changes might be small, but a 1% change in the GDP or unemployment is a gigantic thing.

As much as I respect the guy, nobody should be making forecasts 3 to 5 years out into the future.  Well, at least they shouldn't rely on these forecasts. Any predictions that far out into the future is susceptible to too many variables and unforeseeable circumstances.  Guessing what's going to happen to the market economy 3 months out is difficult enough.  3 to 5 years is near impossible.  

The best analogy I can give is the prediction of the weather. While we can make some general guesses on what the weather will be like three years from today, the forecast of the exact temperature is futile.  3 years in the future from today is May, so the weather forecast will be warm.  The exact temperature will be futile, because too much shit can happen in the interim.  Will there be storm clouds?  Will there be unseasonable high or low pressures?  Those things are near impossible to predict in the future.

I know B has made billions and I've made tens of dollars, but he's been wrong before about long term forecasts.  In his book, Everything You've Heard About the Market is Wrong aka Bill Gross on Investing, he made some incredibly bad forecasts of the economy.  It turned out we had some of the best years when he predicted otherwise.  

B may be bond genius, but I question his current actions.

Our boy, Bill Gross, is creating a stir with his comments that the US will lose its AAA rating.  For the uninitiated, the rating is just another method of assessing the overall soundness of the United States or its likelihood of paying its debt.  

The US has always been at the top of the borrowing ladder, because it's a wealthy nation, etc., etc.  

When the US government runs the printing press like it has in the past 8 years, all of that spending is bound to catch up sooner or later.  China was previously hungry to finance all of this cash printing.  Some economists estimate that China owns as much as 30% of the entire US Government debt.

China is no longer hungry for US debt/dollars.  As was reported here, it has been dumping the dollar for gold and other currencies (probably the Euro).  China is also experimenting with letting its yuan appreciate in value.  

The investor economist in me doesn't think the US will lose its AAA rating.  Bill Gross can be a bit sensationalist.  There are even some suspicions that his comments are the result of a pump and dump.  The USD won't be as wonderful against other currencies, but I don't believe that's enough to hurt the US debt ratings.  It's unfortunate that the government has to resort to the Atomic Bomb of monetary policy by printing so many dollars, but there are some real signs the US economy is recovering.  I trust this administration to let off on the throttle once the economy recovers.  When that happens, everything will be peaches again.

This made me do a double take, because I am always watching the movements of players I respect.  

PHK primarily invests in below quality debt obligations, aka "junk bonds".  I've been forecasting an economic recovery by the end of this year.  A recovery in the sense that our economy should stop bleeding by the end of the year.  

Implicit in Gross' move to PHK is his belief the economy is starting to bottom.  Market conditions are going to improve and any companies that are still alive, but have junk valuation are likely to recover more quickly from a bottoming economy.

I'll take this as another sign the economy might be bottoming to 0% GDP.

I don't really know much about junk bonds and can't really recommend these plays.  However, I'm starting to look into HYG and JNK.