Investment Outlooks from Bill Gross
Below, I summarize my takeaways from the letters by Bill Gross. I like his letters because they’ve opened a new way of thinking about macro for me. Below, I summarize the letters that I have read. I have skipped the ones that are unrelated to investing (or, so I think) or the ones that didn’t contain any new lessons for me.
We should expect destruction in bond portfolios from this “New Age” economics–corporate bond investing in this New Age economy is a dangerous proposition. Destruction is no big deal for equities holders (assuming they’re holding a diversified portfolio) because a couple of big winners can compensate for few other equities going to donut. But, in the bond market there are no big winners that could compensate for losses of others because no matter how well a company performs, they’ll not pay bondholders more than par value. This implies that outperformance in the current year will be less about duration/maturity positioning vs. sector/quality orientation.
If interest rates/inflation stop going down, stocks can go up only in tandem with the long-term earnings growth.
Overcapacity is symptomatic of monetary easing because lower yields reduce return on investment threshold and induce more and more investment, increasing supply of goods/services.
Nearly 1/2 of PIMCO’s outperformance in the bond bull market (for nearly 20 years) came from duration extension by 1/4 to 1/2 years through use of undervalued bond futures. This could work because (i) there was a bond bull market, and (ii) futures were cheap.