Is Bill Gross a Tin Hat too?

[RockOn]

Originally Posted by clifp

You mean like Annuties? Oh wait if inflation is too low then annuities are even worse deal. I am so confused.

I don't know why this comes up. Annuities are investments like other investments such as stocks and bonds. All investment vehicles are being impacted by the under-reported CPI in my opinion, annuities are not worse off or better off. Annuities are what they are, currently yielding slightly more than some fixed income assets. All fixed income assets get hurt by inflation, with a COLA'd annuity there may actually be some protection. There is no inflation protection on a standard bond investment. (But it really doesn't matter to me if you do not like annuities, I find them to be a pretty interesting non-volatility investment).

PLUS, even though I believe CPI is much higher than reported right now, I am not predicting high inflation far into the future. It could be peaking right now at around 7% (as in the rest of the world) or more, not the 4% CPI-U the BLS is telling us, that's my view.
Using Gross's calculations on the impact of that, many assets could be overpriced; stock PE's in the 20's, the long bond at 4.6%. Both look highly valued historically.

I am waiting for actual inflation to fall from about 7% to 3%. At that point the BLS will be forced to show we are in deflation; the CPI figures will surely go negative, heck the BLS said inflation was zero a few months ago . I predict they will readjust their methods to show there really isn't deflation. Maybe they already have that covered, they will start assuming we are eating steak instead of hamburger again . A panicking Uncle Ben will be flying the helicopter, the plunge protection team at work. It might not be that far off if the housing market doesn't stabilize.

[barbarus]

Originally Posted by RockOn

A panicking Uncle Ben will be flying the helicopter, the plunge protection team at work. It might not be that far off if the housing market doesn't stabilize.

House-price deflation is going to accelerate for some time. The only way to stop it would be substantial wage-inflation to make the oversupply of houses affordable to the many. Impossible.

When the Bernanke helicopters release their fiscal payload general-price inflation will also accelerate.

Stagnant inflation.

[d]

It could be peaking right now at around 7% (as in the rest of the world) or more

a quick check will show that inflation in the "developed world" is not at the level claimed: Output, prices and jobs | Economist.com

[RockOn]

Originally Posted by d

a quick check will show that inflation in the "developed world" is not at the level claimed: Output, prices and jobs | Economist.com

Sorry, but I'll go with Ed Hyman's world inflation numbers. Last I checked, he knows a thing or two about matters like this.

[cute fuzzy bunny]

At least someone knows what they're talking about...

[lsbcal]

Well the Gross article makes me feel that my equities allocation of 34% to foreign is not too high. I do not feel that the Bill Gross article is self-serving.

[RockOn]

Originally Posted by cute fuzzy bunny

At least someone knows what they're talking about...

so bitter

[brewer12345]

Originally Posted by lsbcal

I do not feel that the Bill Gross article is self-serving.

Haaaaaahahahahaha!!!

Pull the other one, its got bells on.

[d]

Originally Posted by RockOn

Sorry ...

it is indeed.

[d]

Originally Posted by lsbcal

... I do not feel that the Bill Gross article is self-serving.

in his own words: "there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide."

[RockOn]

Originally Posted by d

in his own words: "there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide."

Bill Gross makes his money on bond funds. Do we need a few facts on that? Believing the CPI is really higher makes bonds overvalued, maybe more than a little.

Sure he has global investment funds, etc., but he doesn't want his bond fund investors selling their bond funds and going there. I think he is watching out for his clients. He obviously doesn't need the money.

Seeing self-interest in this article . I did expect it though.

[Notmuchlonger]

Originally Posted by RockOn

Bill Gross makes his money on bond funds. Do we need a few facts on that? Believing the CPI is really higher makes bonds overvalued, maybe more than a little.

Sure he has global investment funds, etc., but he doesn't want his bond fund investors selling their bond funds and going there. I think he is watching out for his clients. He obviously doesn't need the money.

Seeing self-interest in this article .

What do you figure the "real" cpi at? 8 or 9?

[RockOn]

Originally Posted by Notmuchlonger

What do you figure the "real" cpi at? 8 or 9?

I've been saying around 7%. Obviously not 3.5% or 4%.

I think I'll go with John Williams numbers since they have been out for a pretty long time now and nobody is disputing him except a few on ER Forum. When I hear he doesn't disclose how he calculates it, I don't buy it. He says exactly what he is doing, anybody who cared enough could replicate the models that were good enough for many years (before the fudging began) and check the numbers.

If we used the current CPI model in the 70's, hyper-inflation could have taken hold in the early 80's. Paul Volker would not have shut off the juice when it was necessary. Maybe history is repeating but this time the juice will not be cut off because we have financial engineered away the recognition of inflation. Inflation is a problem that might not disappear just because we wish it to be gone. I'm not predicting that, but it is possible.

[lsbcal]

Originally Posted by d

in his own words: "there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide."

I didn't even remember reading that but was responding to the overall substance of his article. You are right that he said that. Now I don't have any reason to stick up for Bill Gross, he doesn't need it after all since he's a very rich guy. But I do admire him for some insightful articles. He probably bothers some people because of clearly political statements from time to time. I'm not sure about the CPI being under estimated or not but Treasuries and TIPS seem to be too low.

On the money making front Gross has done well for investors in HABDX (Harbor Bond, ER=.56%) with 1 year return of 11.7% -- wish I'd owned it. HABDX ranks in the top 2% for intermediate term bond funds. Just might buy some HABDX with the sales from my TIPS.

[FinanceDude]

Bill Gross has been bearish since I was 10...........

[lsbcal]

Originally Posted by FinanceDude

Bill Gross has been bearish since I was 10...........

Well he is a bond guy and bonds do best when things are miserable.

[haha]

Originally Posted by lsbcal

Well he is a bond guy and bonds do best when things are miserable.

The biggest all time bond bull market in the US was during the 80s and 90s. Hardly depression stuff.

Ha

[lsbcal]

Originally Posted by haha

The biggest all time bond bull market in the US was during the 80s and 90s. Hardly depression stuff.

Ha, you are right that bonds can do well especially in a declining real rate environment like the 80s and 90s. I was thinking of bonds generally doing well in recessions when equities do poorly. Was 100% equities until about 5 years ago.

[haha]

Originally Posted by lsbcal

Ha, you are right that bonds can do well especially in a declining real rate environment like the 80s and 90s. I was thinking of bonds generally doing well in recessions when equities do poorly. Was 100% equities until about 5 years ago.

For sure this is sometimes true. But the 70s are an instructive counter-example. Bonds hated inflation, and so did stocks. At least the stock averages did in the 70s.

The only effective investments in those years were commodities and short term fixed rate paper.

Ha

[lsbcal]

Originally Posted by haha

For sure this is sometimes true. But the 70s are an instructive counter-example. Bonds hated inflation, and so did stocks. At least the stock averages did in the 70s.

The only effective investments in those years were commodities and short term fixed rate paper.

...and Silicon Valley real estate where the leverage acted like jet fuel.