Posts filed under “Fixed Income/Interest Rates”

Proof the Bond Bull is Over: PIMCO Selling Hedge Funds

If you have been seeking unequivocal proof that the 30 year bull market for bonds is over, look no further than this WSJ headline: Bond-King Pimco Plans to Push ‘Alternative Funds’.

Think about what this means: From 1980 to 2013, PIMCO enjoyed three decades of rising bond prices — read falling interest rates — and accumulated a massive pool of over $2 trillion in assets under management (AUM). Founded in 1971, the firm rode the bond Bull better than anyone else. The bond bull also led them to manage the world’s largest mutual fund, their Total Return Fund, which has amassed $242.7 billion in assets.

To me, the fact that PIMCO is embracing alternative investments signals the end of the bond bull market. While some folks may want to blame a change in culture due to Allianz acquiring PIMCO, let me remind you that was almost 14 years ago.

The WSJ notes the impact of the hilariously misnamed JOBS Act:

“Douglas Hodge, Pimco’s chief operating officer, called alternative investments “a very important area for us” in an interview with The Wall Street Journal. He said the firm is responding to increased demand from investors of all types, as well as to changing regulations.

But the push into riskier, more-complex products marks a shift for the firm, whose bond funds have long been seen as some of the safest and most reliable on the market.

The SEC moved last month to lift a restriction prohibiting hedge funds, private equity firms and other businesses from publicising shares in private offerings as part of the Jumpstart Our Business Startups Act, effective September 23. That allows Pimco and others to pitch alternative products more directly to institutional investors as well as wealthy individuals.”

I thought PIMCO had jumped the shark when Bill Gross blackmailed Treasury into guaranteeing Fannie & Freddie’s paper. Note that these were not government owned entities but rather were publicly traded firms. The implied guarantee was forced to become an actual guarantee, costing taxpayers 100s of billions of dollars so far.

bill-grossWith their foray into hedge funds, any suspicion you may have had that the bond bull market was in the 9th inning should be laid to rest.

So too are the days of PIMCO as a purveyor of “safe and reliable investments.” The embrace of riskier, more-complex products can only mean higher costs and lower returns for PIMCO. Say it with me: 2 & 20 generates plenty!

The loser in this are the institutional investors who have come to rely on the “bond king” for safety and security.  The winner? The new bond king, Jeff Gundlach’s and his firm Doubleline. We swapped some holdings form PIMCO to Doubleline last year; I suspect that we will eventually move the rest in that direction.

Here’s a fun bet: Who wants to guess how much AUM Doubeline takes away from PIMCO over the next decade…?



Bond-King Pimco Plans to Push ‘Alternative Funds’
Kirsten Grind
WSJ,  August 28, 2013

Category: Fixed Income/Interest Rates, Hedge Funds, Investing

What Do Outsized Bond Yield % Increases Mean?

Click to enlarge Source:: Société Générale   Nice chart from Andrew Lapthorne of Société Générale describing the spike over the past few months in bond yields. Lapthorne adds: “Not that this seems to be worrying investors too much: equity markets have proven reasonably robust in the face of such rising yields and equity volatility continues…Read More

Category: Fixed Income/Interest Rates

Broken Relationship: SPX Yield vs 10 Year

Low bond yields have in the past been bad, not good, for equity returns

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Category: Dividends, Fixed Income/Interest Rates, Video

The Deleveraging American Consumer?

click for ginormous graphic Source: WSJ     I love this giant graphic from this morning’s WSJ — it gives us the 30,000 foot view of consumer debt here in the USA. Despite low rates — or is it because of them? — American consumers have seen their debt loads fall to the lowest levels…Read More

Category: Consumer Spending, Credit, Fixed Income/Interest Rates

A Generational Selling Opportunity for the U.S. Long Bond

From James O’Shaugnessy, author of What Works on Wall Street, Best-Performing Investment Strategies:  

Category: Books, Fixed Income/Interest Rates, Think Tank

Barclays: Detroit Chapter 9 Begins

Zero Hedge embedded this Barclays piece about the Detroit Bankruptcy. I don’t agree with all of it, but it is a worthwhile read, and until they take it down, here it is.     Barclays Municipal Research Detroit – Chapter 9 Begins

Category: Fixed Income/Interest Rates, Legal, Think Tank

The Recent Bond Market Selloff in Historical Perspective

The Recent Bond Market Selloff in Historical Perspective Tobias Adrian and Michael Fleming Liberty Street Economics August 05, 2013     Long-term Treasury yields have risen sharply in recent months. The yield on the most recently issued ten-year note, for example, rose from 1.63 percent on May 2 to 2.74 percent on July 5, reaching its highest level since…Read More

Category: Federal Reserve, Fixed Income/Interest Rates, Think Tank

Interest Rates Are Manipulated

If We Don’t Break Up the Big Banks, They Will Manipulate More and More of the Economy … Making Us Poorer and Poorer Interest rates are rigged: The big banks have conspired for years to rig interest rates … upon which $800 trillion in assets are pegged This was the largest insider trading scandal ever…Read More

Category: Fixed Income/Interest Rates, Think Tank

Case-Shiller: Home Prices Increase in May 2013

Click to enlarge

Key data points:

•  Home prices show increases of 2.5% and 2.4% for the 10- and 20-City Composites in May versus April.
•  Dallas and Denver reached record levels surpassing their pre-financial crisis peaks set in June 2007 and August 2006.
•  This is the first time any city has made a new all-time high.
•  All 20 cities increased from May 2012 to May 2013 and from April 2013 to May 2013.
•  In May 2013, the 10- and 20-City Composites posted annual increases of 11.8% and 12.2%.
•  The Southwest and the West saw the strongest year-over-year gains.
•  The overall report points to some shifts among various markets: Washington DC is no longer the standout leader and the eastern Sunbelt cities, Miami and Tampa, are lagging behind their western counterparts.


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Category: Fixed Income/Interest Rates, Real Estate

Detroit, Munis, A Follow Up

Detroit, Munis, A Follow Up David R. Kotok Cumberland Advisors July 26, 2013     As a follow-up to the Detroit-Muni Bond series we have published, here are additional views: 1. John Ruiz of Morgan Stanley Matrix offers this: “Note to cross-over buyers: if you see Meredith Whitney on your TV screen, and she is…Read More

Category: Fixed Income/Interest Rates, Think Tank