Friday, February 24th, 2012
While those of us closest to the market tend to equate “market = economy”, it’s obviously not so much that way for the other 98% of the population. That said, economic data has firmed up quite a bit in the past few months, so many eyes were on the ECRI and it’s main spokesman Lakshman Achuthan who made a call for recession about 5 months ago. He has resurfaced this morning. As always the firm says their data has a lag of a few quarters, but this is going to be an interesting call when we look back at in half a year as thus far it appears to be the first strikeout in a while. But still too early to tell.
p.s. Lakshman says the consensus will “see” the recession about a half a year from now. He does point to a lot of interesting economic factoids… and says employment will roll over in the future.
Also a Bloomberg radio interview this morning can be found below:
Tags: 5 Months, Bloomberg Radio, Consensus, Economic Data, Ecri, Employment, Factoids, Lakshman, Lakshman Achuthan, Lot, Market Economy, Population, Quarters, Radio Interview, Recession, Spokesman, Strikeout
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Wednesday, February 15th, 2012
James Grant, of Grant’s Interest Rate Observer makes some thought-provoking statements in his must-listen Bloomberg Radio interview with Tom Keene today. While noting America’s exceptionalism (h/t Clint Eastwood?), he perhaps doesn’t mean all Americans as he takes the Fed and Treasury to task over their actions in recent years (and in fact for decades). His long-held view that rates should be higher and follow generational cycles raises concerns for him that government intervention is in fact ‘prolonging the symptoms’ of the recession. In considering Tom Keene’s well-thought-out question of why the US does not take advantage of low rates and issue exceptionally long-dated bonds, Grant agrees with the odd premise that they do not but then goes on to what would be sounder policy.
“Why not issue bonds backed by gold bullion? Gold is a better money and is grounded in something besides the power of the people that print the dollar bills.” The interview goes on to discuss population growth as a more potent ‘fix’ for housing in the US than QE, that the US is a preferable investment environment (given valuations) than Germany or Japan, the drastic drop in NYSE volumes, and the “leeching out of excitement, hope, and expectation of improvement (particularly for the young).” His compare and contrast of the 1920-21 depression to the current Great Recession (which seems not to end), focused on the fiscal and monetary actions, is an eye opener that its just possible the present-day orthodoxy is wrong. Urging that we maintain our sense of shock at the size of our ‘peacetime’ deficits, Grant worries that we are in a secular stagnation.
Click below to listen to the interview…
Tags: Bullion Gold, Compare And Contrast, Dollar Bills, Drastic Drop, Exceptionalism, Eye Opener, Generational Cycles, Gold Bullion, Government Intervention, Interest Rate Observer, Investment Environment, Issue Bonds, James Grant, Jim Grant, Leeches, Nyse, Peacetime, Population Growth, Radio Interview, Tom Keene
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Bill Gross says QE3 Unlikely Even as Job Growth Slows; Gross Still Shuns Treasuries, Likes Dividend Yielding Equities
Monday, June 6th, 2011
Bill Gross says QE3 Unlikely Even as Job Growth Slows
Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the Federal Reserve is unlikely to do a third round of quantitative easing even with the economy adding fewer jobs than forecast.
Central bankers are likely to “extend the extended period” language for longer in their policy statements, Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene. The less-than-projected pace of jobs growth in May that the Labor Department reported today shows that “there is a persistency here. It’s back to our old new normal,” he said.
“We don’t see a QE3. There has been too much discussion and dissent within the Fed to permit that type of program,” Gross said in the interview from Pimco’s headquarters in Newport Beach, California. Given the current pace of growth and inflation “they will speak to a fed funds rate that persists for an extended period of time, which in effect caps interest rates in the process.”
Investors could seek higher real returns than those now offered from government debt through investing in shares of “conservative” companies such as Procter & Gamble Co. (PG), Merck & Co. or those of utilities, according to Gross.
“The Treasury market up to seven or eight years is negative in terms of real interest rates, and that’s not a positive for savers,” Gross said. “But if they took that money and invested it in a conservative stock, such as a Proctor or a Merck or a utility yielding 4 percent; then that’s 3.5 to 4 percent real yield in comparison to those negative real yields in the Treasury side. So you have to take a little bit of a chance in order to avoid getting your pocket picked here.”
I concur with Gross about the likelihood of QE3 in the near-term horizon and suggested the same thing in a recent interview on Market Ticker with Aaron Task. The key to that sentence is the phrase “near-term”.
Right now, the Fed does not want more froth in junk bonds, nor does it want higher commodity prices or $150 crude, especially since QE2 was a miserable failure in producing jobs or reviving housing.
However, should the economy enter a sustained downturn, and if commodity prices plunge (giving the Fed some breathing room), it’s a given the Fed will try something. Whatever the Fed tries will likely be good for gold.
Please see Why I Continue to Like Gold for a video discussion.
The problem with Gross’s dividend stock play is that it is likely all stocks get hit in another sustained downturn. A 4% yield may be nice, but not if it comes at the expense of a 25% haircut in equity prices.
With valuations stretched everywhere one looks, there is a lot to be said for waiting on the sidelines for better opportunities.
Mike “Mish” Shedlock
Tags: Bill Gross, Bond Fund, Dissent, Fed Funds Rate, Government Debt, Investing In Shares, Investment Management, Labor Department, Merck, Newport Beach California, Pacific Investment Management Co, Persistency, Policy Statements, Procter Amp Gamble, Procter Gamble, Proctor, Radio Interview, Tom Keene, Treasuries, Treasury Market
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