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Archive for the ‘Bill Gross’ Category

Debt: still very much in favour

Reports by the Wall Street Journal that officials at the Federal Reserve are drawing up plans for starting to rein in the current programme of QE are worth noting. Jon Hilsenrath, the Journal reporter who wrote the story, is widely held to be the Fed’s favourite unofficial channel for making known its future intentions.  Could it be that even the Fed is starting to get concerned about the runaway effect that its monetary stimulus is having on asset prices? Throw in Mr Bernanke’s warnings about excessive risk-taking last week and it is tempting to suppose that even the Fed would be happy to see a pause in the the advance of risk assets, at least for now.

That would certainly seem to sit quite well with the normal midyear seasonal pullback that we have seen for each of the last three years. The worry with QE has always been that it is easy to get started on it, but very difficult to stop. Now that the Japanese have joined the QE party in an even more dramatic way, the ripples are being felt in financial markets all round the globe, compounding the scale of the eventual problem. Yields in a number of credit markets (eg junk bonds, leveraged loans) have fallen to what look like dangerously complacent levels. Companies such as Apple are obviously happy to take advantage of the ultra-low rates on corporate debt, but whether that achieves any longer term benefit remains to be seen – not so obvious when the purpose of the debt is committed to share repurchases rather than new capital investment. All the while a return to the levels of economic growth we witnessed before the crisis broke in 2008 remains stubbornly distant. Read the rest of this entry »

Future Investment Returns In Perspective

Whatever your view on the next movement in security prices, which has been the subject of recent posts, it is important not to lose sight of the bigger picture. Bill Gross,  founder and head honcho at Pimco, the world’s largest bond fund manager, sees  nothing but mediocre  investment returns in the years ahead, a state of affairs which for some time he has been characterising as  the “new normal”.

He starts his latest monthly commentary by commenting on two recent items of news from the hedge fund world: (1) the decision by Ken Griffin’s Citadel Group, one of the giants of the hedge fund business,  to consider cutting fees on its  funds and (2) the decision by the  57-year-old hedge fund manager Stan Druckenmiller to pack in his investment career and retire to the golf course after a career that included many years working for George Soros as his right hand man.

His departure and Mr. Griffin’s price cutting are more than personal anecdotes. They are reflective of a broader trend in the capital markets, one which saw the availability of cheap financing drive asset prices to unsustainable heights during the dotcom and housing bubble of the past decade, and then suffered the slings and arrows of a liquidity crisis in 2008 to date. Similarly, liquidity at a discount drove lots of other successful business models over the past 25 years: housing, commercial real estate, investment banking, goodness – dare I say, investment management – but for them, its destination is more likely to be a semi-permanent rest stop than a freeway. Read the rest of this entry »

Written by Jonathan Davis

October 4, 2010 at 4:22 PM