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"Financial Markets Are Artificially Priced: What Do You Do?" - Bill Gross' First Janus Capital Letter
From Bill Gross at JanusCapital
Dear Friends,
Dancing, or better yet as the beginning of my Investment Outlook suggests, being asked to dance, seems to have become an important part of my life over the past month or so. Having first been asked by my wonderful wife, Sue, and now by Dick Weil and Janus from a business standpoint, I write to you today from my desk in a new Janus office in Newport Beach, California. I am excited to be here and to begin a new chapter of my career. Before I get on with the main business of markets and investing in the attached Investment Outlook, I am of course aware that my change of employment has raised a lot of questions. I hope that you will understand that I cannot answer all of your questions, but here is what I can share with you.
Let me address the most obvious question first: Why did I leave PIMCO? Had there been a reasonable way to continue there, I would have stayed to my last breath. I was honored by the trust of the millions of clients and thousands of employees over decades. They have been the center of my life’s work. I am very proud of my record there for more than 40 years. PIMCO is a great firm with lots of great people, and Allianz was a fine owner for many years. But slowly and with great hesitation, I came to understand that it was time for me to leave. It happens sometimes to founders! But that is water under the bridge, as they say. I don’t plan to address it further. Now let’s talk about the future.
The second question on your minds may be “Why Janus?” My first professional loves were markets, investing and competing in that framework. I want to return to a simpler role, completely focused on markets, investment performance and serving my clients. It seems like a good time to turn away from the complexity of helping to run a huge firm. I have had a 20-year relationship with Janus CEO Dick Weil (10 of which include his working for me as PIMCO’s Chief Operating Officer). When I asked him whether Janus might provide me with that simple opportunity, he responded with a very enthusiastic “yes” let’s dance together. I am excited to work in a true partnership environment with people I trust. I want to help this team succeed. Most importantly, I want to continue to help clients achieve their goals. I am not ready to retire, so here I am.
I am focused on looking ahead. I have met some wonderful people at Janus, and I see great opportunities for the Janus Global Unconstrained Bond strategy. As a brand new strategy it is tiny, certainly compared to anything I have been used to in recent decades. But that opens the door to a lot of new strategies and opportunities to generate outperformance for my new (and hopefully many continuing) clients. I am also looking forward to working with my old friend and Nobel-laureate Myron Scholes on asset allocation and with the existing Janus fundamental, credit-based fixed income team. It is exciting for me, and I hope for you as well.
Although these changes are significant, the most important things have not and will not change. I am competitive as ever, and I expect to win for my clients. You can count on me to deliver my usual global macro insights and hopefully excellent portfolio management in the years ahead. So that’s it. I look forward to serving you from my new seat at Janus.
Now, on to my first Janus Investment Outlook.
Sincerely,
William H. Gross
You Only Dance Twice
No marriage ever seems totally complete. There is a missing link in almost all of them. Picture perfection belongs only in fairy tales and when it happens it almost always comes at the end of the story, when the princess kisses her frog prince and they live happily ever after. My 30-year marriage with Sue has been one of those – me the frog and she the princess – but never one of ultimate completion or fulfillment – until now. Happy as we were for all those years, there was always something missing, a trivial last puzzle piece to be sure, but a noticeable one nonetheless, at least to me:
We had never danced!
Although we had figuratively waltzed through those three decades, I had from time to time wondered about the actual dancing. Oh, there had been the perfunctory wedding box-step in front of a gawking audience of 40 or so, but nothing much ever since. Blame it on me or Sue, or both of our reluctances to make fools of ourselves. Yet every so often Sue had hinted of her “disco” years before we had met – the flowing skirts, the Travolta “Stayin’ Alive” twirl – and somehow I felt that the missing link must somehow be me. Young Bill, as I explained to her during frequent missed dancing opportunities through the years, had taken ballroom dancing in the fifth grade and had learned to do a pretty fancy “bop” step as well. Yet somehow I never took the final step, the one where you ask your partner to dance!
That all changed on September 2, 2014 – the day Sue asked me to dance! Maybe it was that extra vodka martini on her side of the table, maybe, as she said later that night, it was my “fluffy hair” or maybe it was just the fated last piece of a puzzle coming together on the perimeter of what to me has been a uniquely wonderful marriage. Whatever. We danced!
I must tell you though that this was no ordinary dance. She – the ex-Disco Queen – and I the young student of Arthur Murray, strutted, boogied, discoed with moves that neither of us thought we could ever do – sober or even mildly inebriated. We dipped, we twirled, I even did a bop or two. Travolta would have been proud. We were “Stayin’ Alive!” Most of all, however we smiled! Not the perfunctory smile of our self-conscious wedding dance three decades before, but big, huge, free-flowing grins of having fun – real fun on a dance floor!
Midnight came as it does in most fairy tales, but I wondered no more what I had missed in the years before we had met and the 30 years since. My puzzle was complete. Sue had asked me to dance, and it turned out to be just like a fairy tale. Picture perfect.
Picture perfection or fairy tale endings do not describe the global economy or even its financial markets more than five years after its Minsky/Lehman moment. While U.S. bond and equity markets have been thrust into a seemingly safe outer orbit, the same cannot be said for other developed and developing nations. Many economies in turn have entered or are bordering on recessions with limited monetary firepower remaining to promote real growth. The dancing has begun to resemble the last stages of a 1920s marathon with partners clinging to each other in a desperate attempt to keep from falling down. The Charleston is a faded memory from yesteryear and the long ago apparition of the “Great Moderation.” What are policy makers, and more to the point, investors to do?
I have the following tough love advice – somewhat resembling the counsel given to me in recent weeks: there is a new financial era. Accept it and modify your behavior accordingly, so that your future is safe, secure, and you look forward to a brighter tomorrow. I will explain.
Financial markets are artificially priced. In the bond market, there is nothing normal about a three year German Bund yielding a “minus” 10 basis points. Similarly, UK Gilts and U.S. Treasurys have in recent years never experienced such low yields and therefore high prices. The same comparison can be applied to stocks. While profits in many cases are at record highs, the discounting of future profit streams by an artificially low interest rate results in corresponding high P/E ratios. Real estate cap rates, which help to price homes and commercial shopping centers, are affected in the same way. While monetary policy with its Quantitative Easing and forward guidance for low future interest rates have salvaged a semblance of growth and job gains – especially in the U.S. – they have brought prosperity forward in the financial markets. If yields can’t go much lower, then bond market capital gains are limited. The same logic applies in other asset categories. We have had our Biblical seven years of fat. We must look forward, almost by mathematical necessity, to seven figurative years of leaner: Bonds – 3% to 4% at best, stocks – 5% to 6% on the outside. That may not be enough for your retirement or your kid’s college education. It certainly isn’t for many private and public pension funds that still have a fairy tale belief in an average 7% to 8% return for the next 10 to 20 years! What do you do?
Well the obvious advice on a personal level: Retire later, save more, accept a revised standard of living. But the financial advice varies with your age and willingness to take risk. Younger investors with a Texas Hold’em “all in” attitude could push all of their chips onto the equity table. Boomers nearing retirement probably cannot afford to. A lengthy bear market could force them permanently out of the game. So, one size does not fit all here. It never has.
What might be applicable for most generations, however, is an “unconstrained strategy” that I managed well for the past few years at PIMCO and which now provides me the opportunity for 100% of my time at Janus. An unconstrained strategy sounds very open-ended, and it is. But it allows a professional and experienced investment firm like Janus to select the most attractive alternatives across many asset categories while hopefully diminishing the risk of bond and stock bear markets. The strategy seeks to protect principal while providing an acceptable return in this low yielding, low returning world that I have just described. Unconstrained investors should expect a shorter average maturity for bonds; an ability to profit from currency movements currently taking place with the euro and the yen fits the description as well; taking advantage of what is known as “optionality” and investing in what I have successfully applied in the past with what is called “structured alpha,” would be an important component too. The simple explanation of an unconstrained strategy:
Take your best ideas within the context of a low duration/short maturity portfolio and try to help investors achieve what they consider to be an acceptable return. Watch the fees as well.
Whatever your risk/return persuasion, whether it be stocks, bonds, unconstrained, real estate, or “other,” an “intelligent investor” (as initially described by Benjamin Graham in the late 1940s) should be aware that returns almost necessarily cannot equal the magnificent prior decades that some of you might have experienced during my days at PIMCO. But I/we look forward, with the same intensity and “client comes first” attitude that led to my second marriage at Janus. James Bond famously said that “you only live twice.” I hope to emulate Mr. Bond as Janus Denver and Janus Newport Beach link hands and ideas to improve your financial balance sheet, and ultimately provide a better life for you and your family. Perhaps you only dance twice too. Sue and I would like that.
-William H. Gross
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Does he really believe this whole mess won't crash ?
Impossible!
uh, er, just don't pay attention to the not 1 but 2 crashes since 2000
You guys all miss the point here. Bill Gross has never danced. This is why there is the will to power, because most people have lost the ability or inclination to move thier bodies through space in time with a rhythm and in tandem with other people. This is an essential sociological event that our western cultures have been wrongfully purged of. Dance, trance, transformation bitchez!
Straight from the pen of the Two-Faced God of Bonds ®
Naming the company Janus Funds was Jeanne's last good idea, right before Tom's most profitable exit from a position ever.
artificially priced, artificially operated and manipulated, artificially reported on (i.e. lied about) by all, and all stocks are artificial as well...nobody owns anything that they think they own. The DTCC owns every single stock and they're all re-hypothecated over and over and over again on a dialy basis.
This was a great interview regarding the DTCC (Depository Trust & Clearing Corporation, and Cede & Co.):
They own every single stock in existence in the entire world.
http://www.roadtoroota.com/public/1386.cfm
You know what ain't artificial? Phyzz silver and gold in your possession, bitchez ;-)
Everything else is just a fucking paper or digital lie...stack accordingly.
Bill states pretty clearly that financial assets, all, are artificially priced (meaning overvalued). He is saying however that the music is still playing and so...still time to dance. With ECB and BOJ still pumping the monetary juice and Fed still running highly accomodative policy, you are being asked (told) to dance. So there it is folks, and mind the step down from the dancefloor, its a doosey!
Yup. He told the truth. It was what he did not say that matters. Very well crafted work here.
The older I get the more interesting I find the white space on the page, compared to the actual text. It tells you more, if you're in the right frame of mind to be receptive.
What do you do if markets are artificially priced..(a) Calculate the PV of your cash flow needs as the sum, so instead of saving 10% of your income for a good retirement you need 30% (b) spend your savings and work forever.. btw, that is what the FED wants you to do. Their motto should be "Punishing the diligent savers at the expense of the chronic spenders"
I'm always telling "stock owners" how they really don't own shit, and are merely unsecured creditors to the DTCC.
They are the gatekeepers that will lock the doors to prevent any true crash.
always back to the Book ... like it or not ...
i liked the 666 fat finger with 26 trades ... should have done 666 trades so people finally get it ... dahhh
666 fat finger with 33 trades (freemasons!) would've really set the furry-toothed geeks off.
Ummm hello?
He's trying to GET investors, not scare them away.
Fuck why are so many idiots flooding zh these days...
Of course this is going to end badly! Our leadership sucks. Can anyone tell me why I would even bother voting? All I'm going to say is that for the first time EVER, I'm sitting out the elections. Is anyone else here actually voting?
I've decided not to vote for the first time ever too. Both senate candidates in my state are douches but in different ways. I may vote on some local issues.
I'm also rubbing my hands with glee over senile Gross's dancing fetish. Last time that happened Chuck Prince thought the music would never end.
You're on the right track. Next you've got to learn to stop supporting the Beast by calling it "our leadership."
External government is nothing but the most organized form of crime. Politics is evil, thus so is voting in support of the political method. As such, I despise those who are old enough to know better, yet vote anyway, too apathetic to question their own participation.
What ever gave you that idea? He is clearly having joint pain!
What ever gave you that idea?
Must? Isn't the mathematical necessity for the US Treasury really ZIRP-4-EVA?
This reads like something written a couple of decades, and several hundred billion dollars, in the past.
those are minus signs, right, not dashes ?
Don't I know you? Maybe Janus will hire me to run a Janus Balanced Fascism Fund? I would start with positions in US Treasuries, Military Industrial Complex equities, and GM corporate debt. The rearview mirror tells me this would have been a Morningstar winner over the last 5-year period.
"We must look forward, almost by mathematical necessity, to seven figurative years of leaner: Bonds – 3% to 4% at best, stocks – 5% to 6% on the outside."
i'll go with Hussman here ... he has a negative return on S&P out 7 - 8 years
your brew is fantastic btw
back in the spring the grocery store i frequent started to carry it ... i about fell out when i saw the 6pks
Better "two-hearted" than "two-faced."
Though, enough Bell's will get you "sh**-faced."
I made a pilgrimage to Kalamazoo because of that beer.
I was just going to post the same reference to Hussman. Stocks - 5% to 6% - what is he smoking?
Family of deputy: Ebola scare 'blown out of proportion'
Note to Gross stay away from park benches.
So...dancing on the head of a pin?
Summary:
"These markets are fucked up. I'm rich as shit. You little people are going to have to work harder, longer, and eat rice n' beans."
and..
"we are going to ride this mofo right down the fucking tubes until there isn't a cent in transaction fees left to skim from scared-ass retirees and pension fund managers fearing for thier lives"
and...
"Meanwhile, pay me."
He won't hurt .
It's not his money .
His billions are nicely diversified , thank you .
Exclusive: Venezuela's PDVSA seeks to swap 2016, 2017 bonds- source
| Reuters
dear friends,
i am writing this letter that doesnt really say anything. in fact, i might as well have left the letter blank as that would have been more straightforward. i am so glad i was able to waste your time with my narcissistic babble.
sincerely, bill.
Still back at PIMCO, are you?
Still back at PIMCO, are you?
He said a lot, he even gave you his exact game plan, when most investment letters would only give you a mumbling outlook.
but of course I guess you skipped reading comprehension 101 in school.
but hey, making a brainless cockyass comment is way more important, look at how fucking cool I am.
Well at least he mention that the public pensions are a fairy tale.....that's a start.
Just leave off the "J"...that's where the returns are
haaa! funny
Gross always ends up winning and he will win again.
There is a Digital Weimar going on right now in Shadow Banking. Brill Gross knows that.
Gross will end up a winner.
During Weimar people would burn paper money, but shadow banking cannot burn money, it can only dispose of it to another sucker.
Only Fed or Gov can exinguish digital money
Major world players are trying to dispose of USDs, trillions of them.
There is Digital Weimar going on right now. World trade is dying as a consequence.
Misery is expanding all over the world
Raw materials and energy are being stored, not consumed.
SHADOW BANKING DIGITAL WEIMAR
yep, thats why the dollar is tanking (not), gold is rocketing (not), and tangible commodities are soaring (not).
What there is, is a mass flight to the perceived safety of the US dollar the fed and folks like Gross are the arbiters of who gets in the boat and who gets f'ed.
Pay attention to the point of reference.
Dollar has tanked and is just now trying to recover.
Fed is draining dollars because world is not using them for trade, is rejecting them.
Dollar is not stong at all, it is just shedding extreme weakness gradullay. Still extremely weak
What matters is dollar for oil, dollar for copper, dollar for grains
What does NOT matter is dollar for euro, dollar for yuan etc. Currency is not edible, neither can it be used to fuel a car
Spot on. ;-) People burned currency during Weimar Germany because of "hyperinflation", which is the complete opposite of what we have right now.
People often confuse and conflate inflation with devaluation>(money printing).
You can't burn digital money. People cannot do that.
They just move from account to account and only Fed or Gov can extinguish them.
Dollar will buy you more or less euros or yen.
But what will those yen you buy are going to buy in the real world?
Just japanese output.
Exchange rate is not that important.
Quantity of USDs in the system is primary because it can buy anything real in the world
exchange rate is not important? what the heck are you smoking bro?
Quantity of USD in the system is primary
All else is secondary or tertiary
Exchange rate is not that important if the currency you accumulate doesn't buy much if the country issuing that currency is not producing much output
You collect yen, then you buy only japanese output.
You collect USD, you buy everything in the world
since when are you forced to buy goods domestically with any said currency?
?
Why do currencies even exist then?
currencies exist to fuck people out of their wealth. get rid of your currency and get some money.
Yep, currencies allow people to 'store' their wealth for future spending. This also allows others to steal someone else's productivity, by putting it into a form where it CAN be stolen.
Without currencies, the only way to steal another man's productivity is to steal the man himself and force him to work for you.
"You can't burn digital money. People cannot do that. "
Phantom credit can be defaulted. Busted bonds should do the trick. An example: GTAT. It's an asset on a balance sheet until it isn't.
I'm heavenly blessed and worldy wise
I'm a peeping-tom techy with x-ray eyes
Things are going great, and they're only getting better
I'm doing all right, getting good grades
The future's so bright I gotta wear shades
Good to see you posting again, ekm
To explain it differently:
Stronger USD vs oil buys more oil
Stronger USD vs Euro buys more euro. But what do those euroes buy?
Not much. Just european nanny states.
It is important to extinguish USD which are measured against oil, copper, iron ore etc.
USD vs Euro vs Yen etc matters little.
Those euros and yens will buy only european and japanese output, not world output
Barclays to pay $20 million to settle U.S. class action over Libor
| Reuters
that'll show'em ... that they can get away with anything and not even pay pocket change
That guy is going senile!
There were rumors around Pimpco that his behavior had become erratic... Now I believe them, after reading this.
yep, not sure what the fuss was about him leaving
PIMCO will be much better off without ... they are combing the streets for billy ray valentine ...
swimming probably 16 hours a day in this shit for 7 to 8 years, whose behavior wouldnt get a little erratic.
He's been swimming in this shit for 40+ years. Gross is like the aging quarterback that refuses to pack it in while he's still on top. "Egomaniac"
He should start riding the the short bus, and bringing a sack lunch to work.
dancing, disco, waltzing.....
sounds extremely disconected. the guy doesnt even use emails. stick a fork in him already. let the younger generation make some money for once pal
Doesn't have to be senile, "old" will do.
What do you do? When in Rome, be a Roman candle.
Did all those calculations on expected returns include the 50% correction in the stock market, the collapse of the Petro Dollar, and the real and inferred costs of the war on both ISIS and Ebola?
Janus will get into gold soon.
What do you do? You get the hell out of paper and into physical PMs, the only investment class with a chance of being worth anythng in 10 years.
Koreans are getting in on the trend — renminbi deposits in Korea surge 55-fold
entertaining read not as boring as most other investment letters which anyway are wrong 90% of the time, might as well read about dancing. Good luck Bill, respect him much more than the other dudes on wall street, and they are all so jealous of him and been for years. Go man go. He says between the lines no growth (imo) now is that gonna be good or bad for stocks long term, we had 6 year liquidity party, i think thats prob finished now. Where will the money go though thats the question, perhaps no return will be better than destroying capital.....
Dear Friends,
Please pay me 5x more in fees than you would pay for similar funds at Vanguard that also happen to yielding more in addition to their lower fees. Step right up you fucking sucker.
-Bill
"I am Kobe, you are Lebron"
http://www.reuters.com/article/2014/10/05/us-pimco-allianz-gundlach-gros...
Gravity, Time & Propulsion
The solar system is an arbitrary, capricious and malicious gatekeeper, depending upon perspective. You land by adapting to the spacetime of landing, and take off by eliminating the noise. In the middle, you fry. Propulsion is a function of tuning; you need an appropriate instrument, and funny, you were born with one in your head.
As you can see, gravity pits noise against noise, to produce time, in event horizons, out of chaos, which is relative. Space and time are inseparable relative to gravity. Humanism is what keeps humanity put; it sells itself short every time, assuming that the universe is beyond its comprehension, to maintain the artificial scarcity status quo.
If you want to get anywhere, you have to filter the filter. The titration you are observing is like tuning the dial on a radio, microscope, telescope, whatever. What you see depends upon what you seek. Capacity, inductance and resistance are all relative. We are dialing out energy stupidity, so you might want to decide where you want to go before completion of titration.
History is relative to the observer, and the majority never gets off the ground, because of its own false assumptions. It assumes it has no free will because it succumbed to gravity as an infant and walled off the decision as a given, to confirm itself, which can only have one result, being lost in its own time, which has its uses, a majority always examining the mistakes at the last gate when the next is opening.
Financial repression is simply mean re-vision by another name. Let your autonomic system deal with the automatons, 10% of the time, and be on your way. From the perspective of the majority, which is artificially manufactured, as you can see from the noise in the comments relative to the observers, individual free will is random, you pop up here, there, and everywhere, but it’s the noise that’s random relative to the individual.
What Putin knows, now that the Americans, the French, etc. have been lying to themselves for so long that they are dependent upon a collapsing economy, is that there is no net difference between capitalism and communism. No matter how many consumers you collect, they cannot produce a surplus. The only difference between them is income disparity over time, which is an accounting function.
Redefine labor any way you like. All accounting systems drag the economy into a black hole. Do your job and only work with others that do the same. Government is an accountant. Eliminate the make-work, wherever you want to go. Critters determined to believe a myth will ignore opportunity every time, in a relative perception of winning and losing. Prepare, recognize, and make the gate, with position, discernment and perspective.
Only you know where you want to go; what you do with the education is up to you. The Internet is a derivative of derivatives, and the gate is closing, which means that another is opening.
really bro?
Very cool. I'm now convinced all drugs should be legalized.
More like all laws should be delegitimized. Making something legal, is every bit as bad as making something illegal, as both are instruments of power over others not in the club.
Case in point; I voted myself Emperor of the Universe, yet not a single one of you fucks obey my laws and give proper tribute. Why must you all be outlaws within my domain?
If i voted for you as Emperor of the Universe, thaN what am I entitled to? Sincerely, tHe Free Shit Army
&
And in regards to the OP: "Government is an accountant"...with a gun pointed at you whilst a fucking boot print is stamped on the face.
FREEEEEEEEEEEDDDDDDDDUUUUUUUMMMMMMMMBBBBBBBBBBBBBB!!!!!!!!!!!!!!!!!
"Case in point; I voted myself Emperor of the Universe, yet not a single one of you fucks obey my laws and give proper tribute. Why must you all be outlaws within my domain? "
I have dutifully contemplated your assertion, N/A.
1. Once you voted yourself master of the universe, which you arguable had the power to do; you became responsible for this domain.
-It is you who owe the denizens thereof a proper environment in which to enjoy the fruits of your labor and be entertained in.
2. Universal Laws simply cannot be defied therefor we cannot be outlaws. Rules can be broken; Laws cannot.
-I know you know this since you are Emporer so I assume that making jest with one's fucks is amusing to you.
3. Please send me more nymphomaniacs and hallucinogenic mushrooms, I am insatiable!
"Financial markets are artificially priced."
Artificially = fraudulently.
Spunds like one of this clown's big money making strategies is to trade USD/EURO. Investing in a high-fee fund that uses this as one of its primary strategies is a great plan.
Bill & Dick
Save the last dance for them...
What if you don't like bills or Dick.....does that mean you are screwed
Mow the grass....and then run.....as fast as you can
This fucking guy is 70 years old.
It's time to retire and let some young people have some jobs...fuck you Bill Gross!!
~Dipshitmiddleclasswhitekid