Bill Gross: Investment Outlook (January 2010)
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January 7th, 2010 by AdvisorAnalyst
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Bill Gross, co-Chief, PIMCO, has just released his latest instalment of his newsletter, titled, “Let’s Get Fisical.”
In it, Gross discusses the theme, that 2010 will be a year of “exit strategies,” of breaking free of government assistance. As usual, Gross’ outlook is captivating, and like others requires some interpretation as well as look-through.
Here is an excerpt:
“If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.”
and,
Additionally, if exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009. It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into financial markets. If so, then most “carry” trades in credit, duration, and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their “sugar daddy.” There’s no tellin’ where the money went? Not exactly, but it’s left a suspicious trail. Market returns may not be “so fine” in 2010.
I find it unusual that the discussion of carry trades is seldom discussed in depth, especially when it is such an integral, and functional, moving part of both the credit and equity markets. There has been a noticeable amount of press on the dollar carry trade ending, and the threat that poses, but very little on the subsequent presence and resumption in the yen carry trade, our Japanese “sugar-daddy.” As Hosein Askari recently asked, “Whose paying for the beer?”
Gross doesn’t mention it. There has been a reversal of the inverse relationship between the U.S. dollar and equity markets, emerging markets, commodities, and the Canadian dollar, et al., since the U.S. dollar recovered off its late November lows. Where is the mysterious support coming from? Perhaps its too early to tell, OR, those who do know about it, are exploiting the opportunity, and keeping their lips tightly sealed.
Read the whole newsletter here.
Read more from the author/contributor here.
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Tags: Asset Markets, Bailout Package, Canada, Central Banks, Credit Crunch, Emerging Markets, Fiscal Stimulus, Global Integration, Global Recession, India, Inefficient Allocation, Labor Migration, Liquidity Traps, National Producers, Populist Measures, Roubini Global Economics, Scarce Funds, Smoot Hawley, Social Unrest, Term Result, Trade Distortions, Trade Protectionism, World FightPosted in Credit Markets, Emerging Markets, India, Markets, Oil and Gas, Outlook |
