Bill Gross: "Bonds, Like Men, Are In A Bear Market"

After announcing the end of the 25-year bond bull market this week, and being told that he is early by Jeffrey Gundlach, Janus Henderson's Bill Gross put digital pen to digital paper to explain that for both men and bonds... #TimesUp.

Oprah Winfrey’s Golden Globe Awards pronouncement that "Time is up" for men who oppress women also goes for the bond market that’s been buoyed by repressed interest rates, according to Bill Gross.

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"Bonds, like men, are in a bear market," Gross, manager of the $2.2 billion Janus Henderson Global Unconstrained Bond Fund, wrote in an investment outlook released Thursday. “Oprah shouted, ‘Their time has come.’ The bear bond market’s time has come as well. Many would say, including yours truly -- ‘It’s about time.’ ”

The end of a 25-year bond bull market may have been July 2016, when yields on 10-year Treasury bonds hit an all-time low in a “double-bottomed” pattern, although it wasn’t apparent at the time, according to Gross. The bear market was confirmed this week as rates on the 10-year passed 2.5 percent, he tweeted on Tuesday.

 

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Via Bill Gross,

Women have gotten the short stick or metaphorically the short rib ever since Eve, and I’m with Oprah for president and much, much more but hey, guys have got a few positive qualities that need to be mentioned. I mean when basketball players miss a free throw these days, they still get “low fives” from all their teammates. So here are a few low fives for men, men, men.

I could go on and on. I won’t. I don’t dare. Actually most of the world’s problems would go away if men just stayed home, watched football and learned to talk to their partners during commercial breaks. There are certainly enough of them.

Bonds, like men, are in a bear market. For both, it’s hard to say when it all began. There was no Helen Reddy “I Am Woman” moment back in June 2012, and then again in July 2016 when the 10 year Treasury double-bottomed at 1.45%, but then in retrospect it should have been obvious that for bonds, like men – “their time was up”. Eighteen months ago, it was obvious to most observers that the economy, measured by nominal GDP, was not going to go much lower than 3% and that the Fed was having second thoughts about quantitative easing. A 1.45% 10 year was at that time set up for perpetual QE and the possibility of a deflationary collapse in the economy. Neither condition prevailed, and so 1.45% for tens can legitimately be cited as the end of the bond bull market which began at 15.8% in 1981 and provided prescient portfolio managers with the potential for huge capital gains and the moniker of “total return”, which previously had been the sole bastion of stocks and real estate.

Still, it is not quite legitimate to mark those yield bottoms as the beginning of a bear market. Although the 10 year rose from that point to plateau for several years around 2-2.25%, the price loss of 6 points or so was really not enough to even hint at the late 1970’s bond characterization of “certificates of confiscation”. Even indexed portfolios which included a mild percentage of HY bonds could show a total return of 5% or so in 2017 for instance. Aging boomer bond market investors were disappointed that they had not ridden the equity express, but hey, 5% ain’t that bad.

We have begun a bear market although not a dangerous one for bond investors. Annual returns should still likely be positive, although marginally so.

Now, however, that 5% number may be hard to duplicate. HY spreads are compressed and not likely to provide future capital gains. And the situation in Treasuries, although standing as I write at 2.55%, is not conducive to a “total return” environment either. We have begun a bear market although not a dangerous one for bond investors. Annual returns should still likely be positive, although marginally so.

Tax cuts and increasing budget deficits are providing a temporary fiscal push that likely will increase future inflation to the 2% core target long desired by the Fed.

There are several significant reasons that should lead to a 2.70% + year end yield and a mild bear market total return of 0-1% for most bond portfolios. It’s hard to prioritize one versus the other but let’s start with the nominal economy. Long stuck in a 4% plus or minus range that led to mild bond price changes despite a series of Fed hikes, the nominal economy now looks capable of 5% for at least a few quarters. Tax cuts and increasing budget deficits are providing a temporary fiscal push that likely will increase future inflation to the 2% core target long desired by the Fed. 3% real growth, although perhaps illusionary in your author’s opinion, gives the economy that 5% nominal number that overvalues 10 year Treasuries at 2.5%. Historically, or better yet, in this new era of financial repression beginning with the onset of The Great Recession in 2009, the spread between 10 year Treasuries and nominal GDP has averaged 140 basis points. When using that average, a 5% nominal GDP mindset targets a 3.60% yield on the 10 year over the course of 2018. I’m not that negative but you get this fundamental point.

Secondly, the Fed and importantly other central banks are cutting back on quantitative easing. Later this year, perhaps in September, net central bank purchases of sovereign and corporate notes and bonds may stop, or at least falter far below the $1-2 trillion pace of recent years. The market’s central bank buyers of last resort have perhaps accomplished “whatever it takes”, and are set to allow artificially low yields, and artificially high bond prices to become a little less artificial. This is not to say that there will be any more than 2 Fed hikes this year or that the ECB, the BOE and certainly the BOJ will raise short rates anytime soon. They won’t. But the diminution of QE check writing and a 5% nominal GDP should be enough to produce higher 10 year Treasury yields, near 0% total returns, and the legitimate characterization of the beginning of a mild bear market.

Oprah shouted, “Their time has come”. The bear bond market’s time has come as well. Many would say, including yours truly – “It’s about time”.

  1. Men need fewer pairs of shoes and purses.
  2. Men live 10 years less on average. They truly are the weaker sex. Feel sorry for ‘em ladies, not angry.
  3. Men shouldn’t be criticized for not putting the toilet seat down. If they need to put it down, hey will. If women do too, they can use their foot just like everyone else.
  4. Men run faster, jump higher and are much better at not communicating.
  5. Sure men start wars but great things actually are a result of them. Canned foods owe their origin to Napoleon, microwave ovens to the invention of radar during WWII, and the Internet (not Al Gore) to the fear of Russia bombing U.S. telephone lines during the Cold War. Way to go guys. Keep starting those wars.
  6. Men always know where the remote control is. Right next to them.

Comments

NoDebt Lost in translation Thu, 01/11/2018 - 08:27 Permalink

Sure, Bill, because as higher interest rates start eating more and more of the Federal Budget in interest payments there NO WAY the Fed could do another round (or a permanent round) of QE to drive them back down.  Sure, the Fed is going to sit idly by as the Federal Government goes insolvent and defaults on it's bonds.  Sure they will because the Fed is so "independent" from the government.  Sure.

 

 

In reply to by Lost in translation

eclectic syncretist ShorTed Thu, 01/11/2018 - 09:13 Permalink

The Japanese economy might be seen as a model for what could happen in America (and more globally). After the Japanese economy had a major blow-out in 1990 the yield on the 10-year bond dropped steadily for about 15 years from nearly 8% to less than 1%. It broke out of the downtrend in 2004 but only got up to 2% a couple of years later, and has been in decline ever since, and stands at just 0.07% (essentially zero) today.

Thus there will be no saving, and with no saving there will be little productive investment, just speculation.

https://tradingeconomics.com/japan/government-bond-yield

In reply to by ShorTed

eroc66 eclectic syncretist Thu, 01/11/2018 - 10:17 Permalink

Yen is not a world reserve currency so your scenario plausible however external dollar demands could prove overwhelming however Hoisington concurs to your view with very compelling reasons, I suggest you read the last newsletter.... "markets can remain irrational longer than you can remain solvent", "in individuals madness is rare, in crowds it is the norm" etc etc etc lol  Long, fun recreation, healthy food and Turner Classic Movies!

In reply to by eclectic syncretist

Davidduke2000 Thu, 01/11/2018 - 08:19 Permalink

only in western europe and north america are men mistreated , in Asia men are in high demand by western women because they are macho and know how to rough up women and command respect.

Brazen Heist Thu, 01/11/2018 - 08:20 Permalink

Real men are in short supply, always will be, which is why 10% of men get 90% of female attention.

"I'll ask my wife first for permission" types abound.

Dilluminati Thu, 01/11/2018 - 08:21 Permalink

We have begun a bear market although not a dangerous one for bond investors. Annual returns should still likely be positive, although marginally so.

ergo.. buy the shitcoin instead, buy kodac shitcoin for that special kodak moment

Snaffew Technical19D Thu, 01/11/2018 - 08:39 Permalink

the main reason women haven't fucked up the world is simply because they haven't been given a proper chance.  Given the same power as men, they will be just as destructive.  Look at some of the women in political power....Nancy Pelosi, Maxine Waters, Janet Yellen...the first two are wildly crazy and the third is a political patsy.  They won't be any better than men...just a dickless version with something to prove.

In reply to by Technical19D

bitzager Thu, 01/11/2018 - 08:26 Permalink

I don't care about charts.. How they can allow rates to rise with $20 Trillion (in debt) and counting? That's mathematically impossible, without crashing everything and defaulting..

hotrod Thu, 01/11/2018 - 08:45 Permalink

Last I checked it was mostly all men that died in wars fighting for this country. I realize the women will say, we would have but were not allowed to. The division between the sexes grows. Surprised Bill bought Oprah's line.  Plenty of deviant women out there.

agstacks Thu, 01/11/2018 - 08:48 Permalink

"A 1.45% 10 year was at that time set up for perpetual QE and the possibility of a deflationary collapse in the economy. Neither condition prevailed"

 

Are we ignoring the purchases from the BOJ, PBOC, ECB, and BOE?  

Stopped reading right there..

Calculus99 Thu, 01/11/2018 - 08:57 Permalink

He's 100% right about men being in a bear market, white men of course. 

So who's to blame? 

Men. Specifically weak fucking cuck men politicians.

And with 90% of these weak politicians trying to out virtue-signal each other on a daily basis it's not looking good. But think positive guys, nobody can take our physical strength away from us and eventually I think it's going to come down to that, who is stronger. We will win that battle...

Harry Lightning Calculus99 Thu, 01/11/2018 - 09:23 Permalink

White men today are imbeciles. They allow women to run their lives, they allow teachers to throw ritalin and adderall tablets down their sons' mouths to de-masculate the boy, they let the kid play soccer instead of football and play with fucling dolls and dresses if he wants to, they listen to the social justice morons say its wrong to tell your sons that being a homosexual is abnormal.

And then they wonder why they kids grow up to be effeminate door mats who will let all these things happen to them.

Men need to go back to being men. Kings of their castles. First get out and vote for politicians who will change the alimony laws, so that women no longer will feel like they can act any way they want because if the guy doesn't like it he still has to support them.

Second, stand up for your sons and stop this nonsense by the teachers who refuse to do their jobs as disciplinarians, opting instead to make your child take dangerous drugs that prevent the aggressiveness that is natural for the male to have from developing normally. Do not allow your sons to be given medicines for behavioral problems unless the child is psychotic to the point of endangering the lives of other children. If the child has a self control problem, its up to the school to figure out why the problem exists and how to develop exercises to correct it. Most often these behavioral problems are the result of the student either being bored with the work because the teaching is too slow, or the student is unable to understand the work because the teaching is too fast. Both can be addressed by altering the teaching method for that child. That's what in-class aides are paid to do. Do not let the school shirk their responsibilities by turning your son into a dish rag just so he is quiet in class.

Next, get your sons into martial arts programs, where they will be taught how to fight mentally and physically and that in the right situations they are entitled and obligated to do so. Words are for cowards who are afraid to use force. Strong people fight for what they want and for what is right. Martial arts teaches the child how to develop the strength of mind and body so both can be used to prevail depending on the situation and which asset is called for.

Then, if you are going to take your daughters to work, bring your sons as well. And do not let your sons play with dolls or wear dresses. From the time your sons start taking sex ed classes in school, drum it into their heads that real men do not find a man's ass to be exciting and that homosexuality is not something to fear but something to recognize as abnormal and to avoid like vermin. Do not teach that homosexuals are bad people, just abnormal. They deserve pity and not derision.

If you find that your wife cheated on you and you do not beat the shit out of her for it, then you are a fool who deserves what happened to you. However, if you give you wife reason to cheat on you because you did not act like a real man and husband and father, then you should beat yourself instead of her. Sons should be taught that if a woman once breaks trust with the man she vowed fidelity to, it likely will happen again. Teach your sons never to give anyone a second chance to hurt them after they already did it once.

You don't make your son tough by beating him when he does something wrong. You make him tough by teaching him to be competitive and by doing so within the discipline of following rules. Its better for your son to play on the worst team and be a star who inspires others to do better than to be on the best team where no one is forced to improve.

 

In reply to by Calculus99