Bill Gross Throws In Towel On Bond Bear Market

It appears that Jeff Gundlach was right when he said, "Bill Gross Is Early" on his bond bear market call.

From Gundlach's January DoubleLine Conference Call...

Reminding his audience of the rivalry between himself and Bill Gross, Gundlach disagreed with the former bond king, who made headlines today with his statement that the bond bull market is over, and said that "Gross is too early with his TSY bear market call." What is the catalyst for Gundlach? As he explained, one "needs to see the 30Y at 2.99% or above for the trendline to break."

And now, Janus Henderson tweeted this...

Gross: There is a level on U.S. 10yr Tsys above which stocks and economy are negatively affected because corporations are highly levered. 3.25% is a close estimate. Expect a Hibernating Bond Bear Market for 2018: 2.80-3.25% range.

Following Bill Gross' appearance on Bloomberg where he appears to throw in the towel - for 2018 at least - on the bond bear market.

As Bloomberg reports, billionaire bond investor Bill Gross now believes most of this year’s excitement in the Treasury market is behind us and yields won’t see a substantial move from here.

“Supply from the Treasury is a factor in addition to what the Fed might do in terms of a mild, bearish tone for U.S. Treasury bonds,” Gross told Bloomberg TV.

“I would expect the 10-year to basically meander around 2.80 to perhaps 3.10 or 3.15 for the balance of the year. It’s a hibernating bear market, which means the bear is awake but not really growling.”

 

Which leaves speculators with a record short position now wondering who will be the one holding the greatest fool bag by the end of the year...

 

Comments

buzzsaw99 Thu, 05/03/2018 - 10:42 Permalink

ever since his umbilical cord with the fed was cut bill gross is worse than gartman.  every thing he said was wrong.  especially this: 

As Bloomberg reports, billionaire bond investor Bill Gross now believes most of this year’s excitement in the Treasury market is behind us and yields won’t see a substantial move from here.

he's out of his damn mind.  rates are going to go up and down more than trump's ass on top of stormy's pussy.

Harry Lightning lester1 Thu, 05/03/2018 - 10:56 Permalink

Firstly, all the accrued interest payments off the gigantic US debt have to be invested somewhere. Stocks clearly are overvalued and present a great risk presently. Bond yields over 3% are nothing to wet your pants about, but are the only market large enough to absorb this amount of capital without moving so far against you that the investment becomes unwise.

But the big driver that will allow the bond market to absorb the huge supply of new issues coming will be the transfer of capital out of stocks. A trillion dollars out of stocks is only a 5-10% move for stock indices to the downside, but it pays for all the new debt the Treasury is issuing.

There will be a day when the US government no longer can find the financing to pay for its fiscal irresponsibility. That actually happened during the last nine years, which was a major impetus for at least the last QE program and perhaps a part of the second to last one. But that is not the case now, there is an abundance of capital in the world to fund the US profligacy, which is a shame because it creates the kind of negative moral suassion that permits the profligacy of the US government.

In reply to by lester1

buzzsaw99 Harry Lightning Thu, 05/03/2018 - 11:07 Permalink

...A trillion dollars out of stocks is only a 5-10% move for stock indices to the downside, but it pays for all the new debt the Treasury is issuing.

that is what it looks like sometimes but that isn't really how it works.  the stock market isn't a pile of cash the size of the total market cap.  that is all just notional ponzi valuations.  what ends up happening is more like a shift in opinion among investors along with a starving out of would be borrowers that would seek loans in competition with the treasury.

 

In reply to by Harry Lightning

Harry Lightning buzzsaw99 Thu, 05/03/2018 - 11:19 Permalink

The way it works was demonstrated in the most illustrative of ways in the 4th quarter of 2008. You could see the money transferring by having two monitors side by side, with 5 minute charts on each, one of the S&P futures and one with the Bond Yield. They moved in lock step. 

Ordinarily its a bit slower than that, but the correlation still exists. As stocks are sold, the capital transfers. Its not a ponzi scheme, because as margin closes out in one market its established in another, and there is always real capital backing that margin. So even if a $20 trillion stock market is only worth $5-$10 trillion in capital after the margin purchases are paid off, when the actual capital is reinvested in another market, new margin is established there and the nominal value of the transfer is complete. 

 

In reply to by buzzsaw99

buzzsaw99 Harry Lightning Thu, 05/03/2018 - 11:24 Permalink

impossible.  for every seller of stock there is a buyer.  no money ever escapes the stock market.  this is true even for dividends and stock buybacks.  the stock market is merely a money transfer operation that constantly relies on the greater fool.  sometimes the central bank is the greater fool, making us all the greater fool, but it is still true.

In reply to by Harry Lightning

Harry Lightning buzzsaw99 Thu, 05/03/2018 - 11:56 Permalink

That's not the point. From a simple perspective not counting the fact that hedge funds get 10 times leverage to buy while the average investor only gets two times capital, the point I am making is that a fixed amount of capital is in the stock market at any time. When some of that capital decides to get out of stocks, it winds up somewhere else. Now yes, a 10% drawdown of a $20 trillion dollar stock market may not represent capital of $2 trillion, , it may only be $1 trillion or less. But it represents some amount of capital that is available to transfer to other markets. Bit when that capital moves to other markets, its buying power may be at least or more than it had in stocks, and so has the same or greater dollar value in the market it transfers into.

Here's an example : a CTA manages $10 million, and under Reg T can borrow another $10 million to buy stocks. So he gets long $20 million. Stocks go up and he cashes out. He pays the profit to his investors, keeps his share of the profit to pay his bills, and pays off his margin debt. Now he has his original $10 million of capital. 

He decides to buy Treasuries, where his prime broker allows him to buy 10 times his capital. So he invests his $10 million in capital and the borrowed $90 million, winding up with a $100 million bond portfolio. Now multiply that by the amount of capital rotating out of stocks and into bonds, and you see that the leverage ratio turns a small liquidation out of stocks into a much larger inflow into Treasuries. That's how it works, and that's why the US Treasury can raise a huge amount of money with a relatively garden sized correction in the stock market.

 

In reply to by buzzsaw99

horse cents Harry Lightning Thu, 05/03/2018 - 12:00 Permalink

The Italian snap election may happen in June. The current government is trying to stop it because they know they will lose.  Get to know the 5 star party. They will try to pull out of the Euro if the elections go ahead.  This is why the unexplained EURO and Bond shorts are at all time high. Someone is betting big that 5 star will spoil the party...

 

Excellent inside intel Harry! But why do stocks and bonds have to move in opposite directions?  Where does the capital flow when the huge bond market starts to liquidate? I don't pretend to know. It just dosen't feel the same this time

In reply to by Harry Lightning

Harry Lightning horse cents Thu, 05/03/2018 - 12:10 Permalink

I can understand the Euro shorts based on that situation. Bonds should be bid, however, if the Euro is in trouble., 

Remember the Spring of 2012 ? Greece ? Euros got killed and US Treasuries soared, as capital out of Europe looked for a safe haven.

Why anyone would make a systemic financial decision over Italian politics is beyond me. They change their government once a year over there. If they return to the lira, buy wheel barrels. 

I hope they do get out of the Euro, my Italian holidays will be less expensive. One of my favorite places on earth...

In reply to by horse cents

CHX13 lester1 Thu, 05/03/2018 - 12:12 Permalink

E.g. the SNB that still wants to further weaken the Swissy. And there will be some Euro-located buyers as well, for the same reasons. This house of cards just gets blown bigger and bigger on all ends, kinda tag-team style. At some point though a major debtonation is on the way IMHO. When that is, I have no clue. But something ugly is lurking beneath and it's all over the place. GLTY+A.

In reply to by lester1

small axe Thu, 05/03/2018 - 10:42 Permalink

Gross never had an original idea in his life. He's the worst kind of go-with-the-flow parasite. Before Gross utters his drivel, his opinions are sanitized for popular consumption by Fed groupthink, just like every other stock or bond "king."

Harry Lightning small axe Thu, 05/03/2018 - 10:48 Permalink

Gross has a habit of saying one thing and doing another. This tactic was an important part of being able to make moves with a gigantic bond portfolio like what he managed at PIMCO without his moves sending the market in an adverse direction from what he was trying to do.

I would not underestimate his abilities as a bond trader, because he has proven to be a great one. And he is a nice fellow if you ever get the chance to know him. But if I factor his commentary at all into my decisions, I tend to do the opposite from what he says publicly.

In reply to by small axe

Harry Lightning Thu, 05/03/2018 - 10:44 Permalink

I agree with the upside yield target for the 10s, but as I see it the big surprise will be later this year when the bond market rips peoples' lungs out with a monstrous rally fueled by capital transfer out of stocks. Wait for the rest of the downtrade for 10s to wash out the remaining longs above 3.00%, and let the stock market guide you as to when to get on board the ensuing rally.

And PAY NO ATTENTION  to the bogus chart that the imbeciles at ZH keep putting up that says the Treasury market is short by a record amount. See the CFTC Commitment of Traders report that is an actual weekly compilation of net positions in Treasury futures. That Report shows the market to actually be LONG right now, which confirms that yields still need to go higher before they can go lower. Once THAT Report shows a large short net short Treasury futures position among traders, the market will be ripe for a big rally.