Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Stock Market Major 4 or Primary IV Wave - 31st Jan 15
Gold And Silver Price Probability for A Lower Low Has Increased - 31st Jan 15
U.S. Bond Market Has Reached Tulip Bubble Proportions - 31st Jan 15
The 3 Big Reasons My Apple Stock Price Prediction Is Still Coming True - 31st Jan 15
199 Days of Hell - Unintended consequences: Oil and the Worst Battle in History - 31st Jan 15
Kaminak Yukon Gold - 30th Jan 15
U.S. Asset Price Deflation Coming Up? Food Prices Drop? CPI Negative? Credit Deflation? - 30th Jan 15
An Often Overlooked Predator: State Governments and Income Taxes - 30th Jan 15
Bullard Says Rates at Zero Interest Rates Not Right for U.S. Economy - 30th Jan 15
Why the European Central Bank's Massive Economic Experiment Will Fail - 30th Jan 15
Gold Price Short-Term Bottom Due, Higher into February - 30th Jan 15
Silver and Other Precious Metals To Manipulate - 30th Jan 15
Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There - 30th Jan 15
To Create Unlimited Market Liquidity or Not; That Is the Question - 30th Jan 15
Seen the Energy Downturn Movie Before, and Not Worried - 30th Jan 15
It’s Not Time to Sell Everything – Yet - 30th Jan 15
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

Investing in Mortgages Makes Sense While Fed Supresses Yields

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

By: Bloomberg

Interest-Rates

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."

bloomberg.com

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.


© 2005-2014 http://www.MarketOracle.co.uk - 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

Free Report - Financial Markets 2014