How meaningful is PIMCO's negativity on the economy?

BondInvestor

In the last week or so , PIMCO published several research pieces "Damages", "What the Fed's Move Means For You" and "Gold - The Simple Facts". What's the unifying thread in all these pieces . .a very pessimistic economic view with high inflation expectation and limited hope that FED's actions will help. (For a summary and links to these pieces go to http://www.learnbonds.com/bill-gross-gold/

Do you put any weight into PIMCO's macro-economic viewpoint? As they are almost taking up a position that is opposite their book (they primarily a bond mutual fund company), does this give them more credibility?

scott

El-Erian and Gross are highly intelligent and highly thoughtful as to the big picture. Pimco has not always been correct (which one can say about everyone) and they can go against their stated views (although that's primarily poker player Gross, not so much El-Erian.)

I don't disagree with the views in the slightest - I continue to believe that hard assets will continue to fare well over the next decade and inflation will become problematic as governments will choose the inflationary route.

It's not flat-out negativity, as much as - I suppose - a discussion of what the path governments are likely going to take will mean for investments and the economy. I can be big picture negative on a lot of issues, but excited about a lot of sectors and other things.

Pimco has likely seen heavy inflows into their bond funds over the last few years, but bond performance will turn at some point and Pimco can't be accused of not warning people to some degree. They will probably continue to expand their equity offerings (and Doubleline is considering equity offerings) and I think while not all of Pimco's equity offerings have been great, I've liked Pimco's attempts to pull in established talent from other companies.

AndyJ

Economically, it really doesn't make much sense to combine views of "high inflation expectation and limited hope that FED's actions will help."

BobC

Not any more meaningful than other respected groups. The goal of PIMCO and other organizations is to get their name out as much as possible. And PIMCO does as good a marketing job as any. Sometimes they are wrong. Often they are right for the most part. Sometimes they do not practice what they preach. That's just the way it is. But PIMCO's hope is that enough people will believe Gross and El Erian are smart enough to send more money their way. Other large fund companies do similar things. Some take a different approach to marketing, but make no mistake that's what this is. PIMCO has done a darned good job of marketing these two guys. Personally I put more faith in Rob Arnott, and he is surely less of a windbag than Mr. Gross.

hank

Gross has his admirers & detractors. I wouldn't put much credence in any predictions - least of all pronouncements by tv celebrities - which BG has become. Each investor needs his own "weathervane" so to speak and - like the weatherman - even the best are sometimes wrong. Of all the posters here, I think Skeeter does the best job explaining his process assessing stock valuations and appropriate risk he's willing to take, based on things like earnings, PE ratios, outlook for the economy, and many other factors. The point is not to copy anyone, but formulate your own approach.

Gross isn't the only self-promoter in the business. It's part of the game. A highly recognized name can translate into career advancement, job security, and large incomes. When I'm really confounded about prospects for an asset group (stocks, bonds, commodities) I'll read the shareholder reports (annual & semi-annual) for a few highly regarded funds. Easy to pull up on the Internet. Perhaps the most revealing are for funds like PRWCX or OAKBX - whose managers have lots of flexibility among asset classes and more likely to let you know where they think the value is (and isn't). I'd put more faith in a half dozen different "low profile" managers than in any one media celebrity. Don't know what's around the corner. Have quite a bit of faith in the well documented election year cycle. Election's very near, and markets generally don't fare well in the following year.

Gross's infamous "Dow 5000" prediction in 2002, wasn't too bad I guess. The bottom was around 6500 and occurred in 2009. If you had sold all your stocks at time of his call, you would have been on the sidelines for 5-6 years as markets surged ahead. Had you accepted blindly his 5000 number, you would have waited too long to re-enter, missing the huge come-back. The linked U.S. News article is only "mediocre" in assessing BG's influence on markets - but I found the high number of Google searches his name commands of some interest.

http://money.usnews.com/money/personal-finance/mutual-funds/articles/2012/08/16/gauging-the-bill-gross-effect-for-stocks

Charles

Nice hank. Thanks.

scott

http://blogs.marketwatch.com/thetell/2012/10/18/pimco-predicts-u-s-credit-downgrade-report/

hank

Reply to @scott: Not sure why BG is rattled. S&P cut the rating in 2011. Fitch threatened to last December & hinted at such a move in 2013 (linked article). And Moody's said pretty much same thing over month ago (linked article). Does it somehow mean more coming from Gross than from one of the rating agencies?

Fitch: http://www.reuters.com/article/2011/12/21/us-usa-fitch-idUSTRE7BK1V720111221

Moodys: http://www.huffingtonpost.com/2012/09/11/moodys-us-credit-rating-fiscal-cliff_n_1873780.html

scott

Reply to @hank: I'm not sure it really means anything anymore coming from anyone, honestly, given the way things are these days. Neither here-nor-there really, just saw that and thought it kind of went along with the original post.

Personally, I thought the most enjoyable and insightful discussion of where things are and the near future was Gundlach's 2-part interview on CNBC a month or so ago (especially the second half), discussed here:
http://www.mutualfundobserver.com/discuss/index.php?p=/discussion/4044/more-gundlach-cnbc/p1

hank

Reply to @scott: Yep - good discussion & timely. Guess what I perceive as Gross's "grandstanding" wears thin at times. (but if I was raking in $$ in one of his bond funds, might feel differently:-)