Best of the Week
Most Popular
1.War on Cash, Bank of England Planning Hyper QE, Scrapping Cash for Digital Currency - Nadeem_Walayat
2.Stock Market End Run Smash Crash Looks Imminent... - Clive_Maund
3.Europe Refugee Crisis, UK to Repatriate 120,000 Hungarian Economic Migrants Back to Hungary - Nadeem_Walayat
4.The Great Deflation Will Destroy All Bubbles – These Too - Harry_Dent
5.Deflation Signals Abound for U.S. Dollar, Forex Markets and Commodities - Rambus_Chartology
6.U.S. Housing Market Two Outs in The Bottom of The Ninth - James_Quinn
7.Poland, Czech, Slovakia and Hungary Refugee Hypocrisy After Flooding UK with 4 Million Economic Migrants - Nadeem_Walayat
8.The Two Real Reasons Crude Oil Prices Are Currently Slipping - Dr. Kent Moors
9.R.I.P. Interest Rates - Andrew Snyder
10.Steps from a Deep October Stock Market Selloff - Bob_Loukas
Last 5 days
Theresa May Declares War on Immigration - Conference Speech Full Transcript - 6th Oct 15
Is Russia Plotting To Bring Down OPEC? - 6th Oct 15
Target Date Funds As Aid In Retirement Investment Portfolio Design - 6th Oct 15
Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - 6th Oct 15
Redesigning Internet and Facebook to Explore Their Full Potentialities... - 5th Oct 15
Nightshades Curb Your Enthusiasm - 5th Oct 15
U.S. Recession Watch, High-Yield – Rising Defaults - 5th Oct 15
The Social Challenge to Find Humanity in Capitalism - 5th Oct 15
Fed Interest Rate Hike: "I don't care. It doesn't really make much of a difference" - 5th Oct 15
Gold Rose 2.2%, Silver Surged 5.4% After Poor Jobs Number On Friday - 5th Oct 15
Gold, Silver Precious Metals: a Critical Week Ahead - 5th Oct 15
Stock Market Correction Still in Force - 5th Oct 15
Gold Price Change in Character - 5th Oct 15
Putin’s Blitz Leaves Washington Rankled and Confused - 4th Oct 15
More Selling for Stock Market, Gold? - 4th Oct 15
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15
What Two Risks From Rising Interest-Rates Could Each Trigger A New Global Crisis? - 1st Oct 15
Stock Market S&P 500 Volatility-Based Price Probability Range - 1st Oct 15
Dow Stock Market About To Crash Like October 1929? Get Your Physical Silver - 1st Oct 15
Stock Market Negative Expectations Once Again - Will It Break Down? - 1st Oct 15
Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - 1st Oct 15
Best Short-Term Commodity Market Opportunities - Video - 1st Oct 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Investing in Mortgages Makes Sense While Fed Supresses Yields

Interest-Rates / Mortgages Feb 23, 2012 - 01:40 PM GMT

By: Bloomberg


Best Financial Markets Analysis ArticlePIMCO founder and co-CIO Bill Gross spoke with Bloomberg Television's Trish Regan, Lisa Murphy and Adam Johnson today about where to invest, the ETF PIMCO is launching next week and the state of the economy.

Gross said that investing in "mortgages make sense" as "yields are not going anywhere for the next two or three years."

Gross on whether investors should be looking at mortgages:

"Sure. An agency mortgage, even a non-agency mortgage, but let's stick to agencies and Fannie and Freddie, they yield 1% to 1.5% to 2% more than those similar average life Treasuries. If you have an environment where interest rates will not change, and that is the key. Is Bernanke good to his promise? If they do not change, you would prefer to have a 1.5% higher yield, a 3% to 3.5% yield as opposed to a 2%. I think mortgages makes sense. The extension of risk adding to high-yield is another situation that is similar to the equity argument that I just made. Yes, you get a higher yield, but you are principle at risk. As you get older and more fixed- income oriented then perhaps you want to stick to something safer."

On why PIMCO is announcing a new ETF next week that will mimic the Total Return Fund:

"That is a complicated answer, but technically the fees are the expenses on an annual basis are less on the Total Return Fund that now exists versus the ETF. There will be a slight difference, but of course you don't pay the all-in retail fees and you could make the argument that it's a lot cheaper as an alternative. The ETF is limited to the extent it can't use futures and optional types of securities that have been successful with the Total Return Fund. Basically they will be the same. We are excited to provide the same types of returns for that ETF as we do for the Total Return Fund and allow individual investors to buy it on the New York Stock Exchange. We do not suggest they trade it, but we think they can buy it at 10:30 in the morning, as opposed to the market closing and have a great longer-term performance record."

Gross on whether the economy and investing environment has improved:

"I think they are. We should analyze why. I think that is always difficult, but I think in this case with central banks writing checks in the hundreds of billions, and yes we're doing that with our Operation Twist, and the ECB is doing that with LTROs, and Japan has stepped it up, and China has been writing checks in terms of increasing their monetary base. There has been a huge flush of money into global markets and ultimately into global economies. You would expect that to happen. That does not mean that is the solution, or the forever solution, but certainly temporarily it has helped to support the economy, and therefore financial markets."

On whether he's changed his position in U.S. Treasuries:

"I do not think so. It is important to recognize, as we a tried to recognize at PIMCO for the past several quarters and past several years, that there are negative repercussions to writing checks and printing money. It is not just inflationary. To the extent that zero-based money that we have here in the United States, that we're seeing in the U.K. and close to that in euro land, it begins to reap some unexpected havoc in terms of the real economy as well. Financial institutions like banks and insurance companies start to close branch offices and lay off people simply because the cost of money does not support the prior economic activity that historically has been the example."

On whether Bernanke's promise to keep low interest rates through 2014 is distorting the bond market:

"I think it does. There is no doubt. It's something to be reckoned with. You don't want to fight the Fed, as they say. To the extent that yes, they have conditionally promised to keep interest rates low, in Bernanke's vernacular that basically means 25 basis points for the next three years or so, then that produces an artificially to interest rates. There is no doubt that real interest rates now certainly from the standpoint of the policy rate and even from the standpoint of five-year tip, for instance, an inflation protected security at a -1.25% relative to historical parameters, that is 1-2%, maybe even 3% lower than they should be. Yes, Treasury yields are artificially suppressed."

On whether he still wants to be in Treasuries:

"You do from the standpoint of recognizing the Fed is good to its promise, and that is something to consider, but if Fed is good to the promise, then interest rates are not going anywhere for the next two-three years, and there is a 3% yield from a longer-term Treasury and 2% yield from intermediate-term Treasuries. Does that represent value? Not really. Certainly the saver and the investors being short-circuited, haircutted, based upon historical terms. If in fact the price of the securities cannot go down very much if the Fed holds to its promise, that is if it keeps interest rates low, then 2% is better than nothing. Put it that way"

On Leon Cooperman telling Bloomberg TV yesterday that the return on bonds is not worth owning them:

"I do not argue against that, and Mr. Cooperman has a decent argument. I just argued that in terms of confiscation of capital. There are several reasons to be cautious, however. One, comparing Treasury yields to corporate stock dividends spans a huge gap of risk. AAA for Treasuries and an implied B AA and lower for subordinated stocks as an investment instruments. Secondly, stocks can go down, too, just like bonds. We certainly saw that in 2008. Third, demographically, boomers prefer certainty as opposed to speculative capital gains, so there's an element to that."

On why Ford is shifting billions of dollars a year from their equity portfolio into bonds:

"They're doing that because of the certainty, locking in their liabilities relative to their assets. Even at a low, 2-3% rate. Boomers, from the standpoint of individual investors, are the same way. They're beginning to get older and require more certainty. Do they find appeal in a Johnson and Johnson at 3.5% dividend yield with growth potential? Sure they do, but they also believe they want that money back, and if there is a 2008-2009 scenario, perhaps they won't. So there are demographic tradeoffs here that have to be considered."

Copyright © 2012 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History