The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Bill Gross, the so-called Bond King, is still very worried about what's going to happen to the financial markets once the Federal Reserve begins to slow down the pace of its asset buying program.
Gross, a co-founder of investment firm Pimco and manager of the mammoth Pimco Total Return (PTTRX) bond fund, wrote about his concerns in his latest monthly outlook.
The piece -- titled "Seventh Inning Stretch" -- is chock full of (nuts?) baseball analogies. (You know you're a contrarian when you rhapsodize about baseball on the day that the National Football League is about to blitz -- pun intended -- the public conscious once again.)
Gross seems to think that the stock market rally will soon end. There won't be extra innings. Unsurprisingly, Gross refers to the Fed's quantitative easing as the equivalent of hitters "juicing" to boost their home run totals.
"Why invest in financial or real assets if bond prices could only go down, and/or stock prices could no longer be pumped up via the artificial steroids of QE?" he asks.
He raises a great point. A lot of experts are worried about what will happen to the bond and stock markets once the Fed starts to trim (my moratorium on the other T-word is still in full effect!) its $85 billion a month of Treasury and mortgage-backed security purchases.
But this is not new. Gross has been warning of pretty much the same risks for some time now. And while he's right that longer-term bond prices have continued to fall and rates have kept rising -- the 10-year Treasury yield is now a hair below 3% -- he's been wrong about stocks.
Last December, Gross listed some Pimco picks and pans. Here's what he had to say about portions of the stock market. "Non-Dollar Emerging-Market Stocks" were a pick. "Financial Stocks of Banks and Insurance Companies" were a pan.
Interestingly, a big reason the emerging markets have plunged (especially as of late) is because of concerns that the next moves by the Fed will lead to massive outflows of capital from these developing nations. India, Brazil and others have large current account deficits.
So while Gross is right to be worried about the Fed, he may have underestimated what impact the end of QE would have on the rest of the world.
Meanwhile, bank stocks have continued to rally despite Fed fears. Investors seem to think that rates won't go so high that they will cripple recovery in the housing market. That could change.
But for now, the market seems to have faith in the Fed. The hope is that the Fed realizes the economy is still fragile, and will pull back on QE gradually.
So Gross' steroids metaphor for QE and stocks may not really be apt. The Fed is not going to completely stop juicing. It's just cutting back the dosage a bit. After all, there's no Wall Street or Beltway version of Bud Selig to suspend the Fed for a season or two. (Although Ron Paul would love to be that guy.)
Now don't get me wrong. Gross still has a great track record over a long period of time. But he's not a stock market expert.
Making matters worse, Gross's own fund has also lagged the performance of other bond benchmarks this year. Yes, it's been a brutal year for fixed income investors, particularly those betting on Treasuries.
But as this next chart shows, an investor would be slightly better off this year in a passively managed bond index ETF like the iShares Barclays U.S. Treasury Bond (GOVT) than the actively managed PIMCO Total Return ETF (BOND) that is supposed to mimic the performance of Gross' mutual fund.
For what it's worth, Gross now thinks that "the safest pitch to swing at" are bonds with shorter-maturity dates. He also refers to them as "boring slow-rolling grounders." Sadly, there's no mention of a bond suicide squeeze or the intricacies of the infield fly rule in his piece.
And Gross also recommends longer-term Treasury Inflation-Protected Securities (TIPS) as a hedge against what he sees as "accelerating inflation at some future time" due to the Fed's easy money policies.
But should you listen to this advice? Investors (and yes, people like me in the financial media) often make the mistake of guru-izing people and treating their every utterance as something that must be considered as an actionable trading nugget. Right now!
To be totally fair to Gross, he made light of this phenomenon in his April outlook. He opened the piece, titled "Man in the Mirror" after the Michael Jackson song (how meta to have the King of Bonds quoting the King of Pop), with the following question and answer:
Am I a great investor? No, not yet.
That honesty is refreshing. Gross then went on to write that "there is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne" adding that the "old guys" like Warren Buffett, George Soros, Dan Fuss, and himself "cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience."
So should you pay attention to Bill Gross? Yes. But take his words with many grains of salt. He'd be out of a job if he suddenly felt that certain types of bonds were no longer a good bet and that investors should flock to stocks, gold, real estate or any other asset instead.
To use another baseball analogy, Gross may be to bond investing what Babe Ruth, Ted Williams, Willie Mays and Hank Aaron are to America's pastime. He is among the greatest.
But even those Hall of Famers were only successful a little more than 30% of the time they went to bat. That sounds about right for investing legends too.
Bond guru Bill Gross is wondering how investors will fare if the current economic recovery gets derailed.
"All of us, even the old guys like Buffett, Soros, Fuss, yeah -- me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch that an investor could experience," Gross, the founder and co-chief investment officer of Pimco, wrote in his monthly investor letter.
"What if a future epoch favors MOREMaureen Farrell - Apr 3, 2013 11:23 AM ET
Get used to lower returns on stocks and bonds, Pimco's founder and co-chief investment officer Bill Gross told investors in his monthly letter.
Gross, who oversees Pimco's Total Return Fund (PTTRX), said that investors are entering a period of what he calls "rational temperance." By that Gross means that investors should expect gains from stocks, and corporate and high-yield bonds to be more muted.
Corporate credit and high yield bonds are somewhat MOREMaureen Farrell - Feb 27, 2013 11:54 AM ET
Bond guru and Pimco (PTTRX) managing director Bill Gross isn't buying into the bull market. In fact, he's warning investors to be afraid, be very afraid, of how inflation and the flood of cheap money will affect all investments.
Investors should be prepared to accept "lower returns on bonds, stocks, real estate and derivative strategies," Gross wrote in his monthly letter entitled "Credit Supernova!"
Championing something of a bunker mentality, Gross MOREMaureen Farrell - Jan 31, 2013 11:38 AM ET
Everything comes at a cost, including the Fed's low rate policy and multiple rounds of monetary easing.
Not one to pass up a good musical reference, noted bond guru and Pimco managing director Bill Gross' latest missive is aptly titled "Money for Nothin' Writing checks for free" in a nod to Dire Straits. In the past, Gross has cited The Beatles and Flavor Flav in pieces.
In his first investment outlook MORECatherine Tymkiw - Jan 3, 2013 1:46 PM ET
The fiscal cliff may be the biggest short-term threat for the market, but there are even scarier problems to worry about, according to Pimco chief investment strategist Bill Gross.
In his latest letter to investors, posted online Tuesday, Gross outlines the long-term challenges facing the U.S economy and lists his "picks and pans" for investors operating in the so-called New Normal.
The New Normal, a term made famous by Pimco CEO Mohamed MOREBen Rooney - Dec 4, 2012 12:25 PM ET
What do Federal Reserve chairman Ben Bernanke and Flavor Flav have in common?
Yet, the 90s-era hype-man turned reality TV star, or at least his signature over-sized clock medallion, makes an unlikely appearance in Bill Gross's latest musings on Fed policy.
In a Thursday letter to investors, the Pimco founder conjures up a Genie "with a 10-inch diameter Flavor Flav clock hanging ceremoniously around his neck," complete with sunglasses and MOREBen Rooney - Nov 1, 2012 11:49 AM ET
The Bond King came out swinging against the most recent easing plans out of the Federal Reserve and European Central Banks on Twitter late Monday.
Gross: Central banks are where bad bonds go to die. Sell bad bonds, buy good ones. Investing sometimes can be very simple.— (@PIMCO) September 17, 2012
The comments from Bill Gross, founder of investing firm Pimco, come just days after the Fed unveiled its plan MOREHibah Yousuf - Sep 18, 2012 1:53 PM ET
Bond king Bill Gross says it's time for individual investors to get used to a new (and slower) dance.
In his monthly investment outlook letter, the founder of Pimco and manager of the world's largest bond fund, Pimco Total Return Fund (PTTRX), wrote that the age of credit expansion that led to double-digit portfolio returns is over, and the age of inflation has begun.
And that means investment returns from both stocks and MOREHibah Yousuf - Sep 5, 2012 2:07 PM ET
The world's largest bond investor took to Twitter Monday to air his gripes about Paul Ryan, the newly chosen Republican vice presidential candidate.
GROSS: Do bond markets take heart from Ryan selection? Not me. He talks lower deficits but really believes in lower taxes — exact opposite.— (@PIMCO) August 13, 2012
The comments from Bill Gross, founder of investing firm Pimco, show the challenges that Ryan may face when trying to MOREHibah Yousuf - Aug 13, 2012 3:58 PM ET
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