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Bill Gross December Newsletter

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Dec 2, 2008 5:33 pm

Here is Bill Gross' December newsletter: Dec_08 WEB.pdf

It is essentially about the changing landscape with regards to public companies.  Gross believes there will be far less leverage in the system, corporate tax rates won't decrease much further, and lack of cheap financing without too much government intervention will take the reward out of stocks.   So, I pulled out a hypothetical report of the PIMCO Total Return Fund and the S&P 500 I had saved.  From 5/31/1987 to 1/31/2008 the S&P's average annual return was 7.83%, versus 7.82% for the PIMCO fund.    It makes me wonder if it's time to re-think the risk/reward models that we are all used to.  I just think people take on a little more risk than they need perhaps.    
Dec 2, 2008 6:46 pm

Snags, this report was issued by BILL GROSS.  OF COURSE he's going to say that.  It's easy to take a specific time period and analyze it to death.  Let me aask you this, if you were going to invest in, or open your own business, would you rather OWN it, with all rights to it's growth and profits, or would you rather LOAN it money at 6%, with just the promise to get 6% coupons?

One other thing, Total Return Bonds Funds such as PIMCO's have seen those returns not because of the market for bonds, but because of opportunistic bond management.  Look at Loomis Strat Income.  It trounces the S&P.  But that's not some plain vanilla bond fund.  And it does NOT take less risk than stocks (when you factor in potential reward vs. risk).

Dec 2, 2008 7:01 pm

Average CD rates, 6 month rate, 1965 to present = 6.71.

Dec 2, 2008 7:07 pm

I have stopped using average annual returns over a period of time, because they are decieving.  If you missed out on the great year or years, then the fund sucks just as bad as anything else, plus you get hit with the capital gains(that weren’t yours).

  Very Interesting point about the CDs, however still not going to buy them(same reason as above)
Dec 2, 2008 7:15 pm

B24, I understand what you are saying.  But, just as Gross is biased to bonds, some of these stock guys are just as far out on the other side.

  As far as owning my own business, I guess I would rather OWN it unless I thought the returns were going to be less than what I would get from the LOAN, but I get your point and have always felt the same as you.   On the positive side, I do think people have such a short-term memory that eventually this won't be remembered.  The only proof you need is to look back 7 years ago.  Many people thought it was the end of the world with the terrorist attacks.  They said they'd never fly again.  Besides John Madden and John Daly, I think most people are still flying.    
Dec 2, 2008 8:21 pm

Not the CEOs of Ford, GM, and Chrysler. 

Dec 2, 2008 8:32 pm

Snags, I guess my point really was that it’s not going to be any different this time.  Yes, this decade will be known as the “lost decade” for stocks.  But realistically, that’s only if you invested in stocks in 1999, then cashed out in 2008.  But not everyone has that time frame.  What if you invested in 1992 (just picking a year), and you held until 2015?  What if you invested in 2002, and held until 2008?  And it also assumes that everyone is invested in the “market” (i.e. the S&P 500).  This does not account for people invested in emerging markets, alternative investments, bonds, gold, deep value stocks, whatever.  When you throw it all into the mix, a very well-diversified portfolio has done OK (not great, but not “zero” for the past 10 years).

Unfortunately, times like this make people want to throw the baby out with the bathwater (i.e. "stocks are dead!").  When you boil it down, buying "stocks" is nothing more than investing in the profits/losses of a company.  If you accept that your time frame is "forever" (to copy Warren B.) on stocks/funds you hold, and you use other asset classes for income/short term cash needs, then there should be no reason to NOT have some portion of your holdings in stocks.
Dec 2, 2008 9:40 pm

Back in 2002, Gross was calling for the Dow to go to 5,000.  While I very much respect the man on bonds, his track record of evaluating stocks is pretty poor from what I’ve seen.

Dec 3, 2008 1:21 pm

i think snags is right – thru 2007 stocks were overused and pushed by planners and brokers (hey look at that avg return 1982-2007!). 1982 is simply convenient. It is also in the b/d’s interest and the fund families interest to do this.

  how many Jones ports had treasuries in them? no $ in that.
Dec 3, 2008 1:26 pm

Don’t forget that for most of the 80s and 90s, interest rates were dropping/bond prices were rising, putting a stiff wind at the back of bonds and bond funds.  For the next 10 years, they are starting at very different field position. 

Dec 5, 2008 2:36 am

Read Bill Gross’s newsletter yesterday and I think he’s right on the money.

  I read his letter every month. Last year he said that investors where not being compensated for risk; volatility was going to increase; the real estate market was going to blow up and interest rates where going down.   He has all the money he needs and I believe he's telling it like he sees it.    Just my 2 cents - It's making me wonder if I should just build a bond book and call it a day.  I don't want to be in this business if I can't better protect my clients from markets like this.  My client's are holding up well (all things considered)  but stocks (held for the long term) have produced nothing in 10 years and corpote bond yields look good.