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Bill Gross's Commentary on US Inflation

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June 02, 2008 – Comments (7) | RELATED TICKERS: GLD , INP , FXI

Here is the link

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+June+2008.htm

Nothing earth shattering .....mostly a reinforcement of what a lot of fools have been collectively expounding over here.

Here's the gist of the recommendation ( sales pitch from Gross)

QUOTE:

What are the investment ramifications? With global headline inflation now at 7% there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide. In this role we would suggest: 1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.

ENDQUOTE

Net net : No Treasuries or TIPS ( I completely agree on this one - its a joke), Commodities and BRIC equities.

Personally, I am a temporary commodity bear ( I think abit is one also - for the same reason). I am buying on at least a TEMPORARY deflationary scenario to begin with. Not just because of the US - but I think the increasing impending intervention that will happen in China and India - from a political and hence governmental standpoint.

I say that its Temporary - because if the Emergent economies somehow are successful in even partial decoupling - inflation will come back big - with the rest of the world still in a recovery non-growth mode - ie Stagflation. All depends on timing obviously.

OT: It was also interesting he starts with Lincoln's quote - and I was looking at ALD ( Statgeeks newest pick) and there they are linked to a book using the same quote. Incidentally, thought about Red thumbing ALD - their model is dependent on continuing ability to raise capital ,and now they are in a simple equity dilution mode due to dividend payout ( refer to Top Bear pitch calling it a PONZI) ......and they have about $400 MM in carrying investment losses - and lots and lots of leveraged Subordinated, Mezzanine debt to go around. Howeever, they are not a bank - a lot of regulations dont apply - so dont count on the marks coming at a fast pace - they can weather this out - as long as the funding liquidity music doesn't stop - read the bull pitches - about 40 years of history etc etc.....so they have believers - I think BSC had them too....just a matter of time and events coming together.  

 

 

 

 

7 Comments – Post Your Own

#1) On June 02, 2008 at 8:37 PM, abitare (49.76) wrote:

FYI - Mish Shedlock had a good write up on Bill Gross and Key Bank

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#2) On June 02, 2008 at 8:46 PM, abitare (49.76) wrote:

http://globaleconomicanalysis.blogspot.com/2008/05/charge-offs-hammer-banks.html

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#3) On June 02, 2008 at 10:19 PM, anchak (99.86) wrote:

I wish I could disagree with Mish over here.

Thanks abit.....with the exception of WB ...who I really didnt look at for a potential BK candidate ..... the other 3 I did .....NONE of them are ( BK candidates I mean) - and I was really trying to stretch my imagination here....However....

The other 3 are in deep (&*%)@#..... FITB looks like extremely close to breaching their Capital ratios - I refrained from Red Thumbing...Just put them on the watchlist and put in a pitch there. This is becoming a little monotonous.

RF and Key ....Need to really look at RF - Their exposure just forces you to do a double-take. However,NPA situation is comparatively holding vis-a-vis Key. I think they're in for Q3 

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#4) On June 02, 2008 at 10:23 PM, abitare (49.76) wrote:

Also of interest Schaeffer's Stock Screener is pretty good at finding garbage take a look at least popular stocks:

Analysts' Least Popular Stocks
KeyCorp (KEY)

Palm Inc. (PALM)

Wells Fargo & Company (WFC)

Huntington Bancshares Inc. (HBAN)

Washington Mutual Inc. (WM)

 

http://www.schaeffersresearch.com/streetools/stockscreen.aspx 

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#5) On June 02, 2008 at 10:54 PM, anchak (99.86) wrote:

Thanks again for the link ...very useful

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#6) On June 04, 2008 at 5:14 PM, TDRH (99.49) wrote:

"I am a temporary commodity bear"

Have not heard this before, but I feel the same way.   Unfortunately I felt this way three weeks too early and ended most of my oil/oil service stocks and they kept running.  With the Fed realizing that it is immasculated/decoupled from long term interest rates I am betting  the dollar may strengthen a little short term and oil will fall in the teens.   This is why I shorted a couple of rocket alt energy plays.  

Not sure if it will happen or how long it will last, but should be interesting times ahead.

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#7) On June 05, 2008 at 10:46 AM, anchak (99.86) wrote:

James....I know the feeling ( with real money) .....I sold my oil positions between oil around 100-110..... and now they have gone up around 20-25%..... in a year like this....that's a lot.

Anyway ..... I was listening to Bloomberg international and found out that both India and Malaysia raised oil prices locally....Malaysia: 40% and India: 11%. This comes after raises in a lot of Asian nation. Indonesia - as I think as saunafool blogged dropped out of OPEC because they are now deep in the importer category. Essentially, this means Inflation is bound to shoot up - especially in India - where its like 1--to-1 linked- and immediate effect on Transport and Food prices. Does not bode well for the Capital market - and of course the central bank is going to raise rates.

However, there's this other thing - CHINA. Apparently , the guy from Merrill reaserch in Asia said that Oil Subsidy is just 30 bps ( .3% - I think he's wrong, probably 3%) of GDP in China. Which means they have the werewithal to burn treasury money and still check this - they have to , even without inflation is double digits.

My summary
-------------------

(1) There will be support for Oil prices around $100 even if there's deflation in US - because China consumption looks like will continue. There's bound to be drag from India , I think

(2) There's some short term pain in Asian Cap Markets.

(3) Possible China decoupling ( this could be interesting)

 

 

 

 

 

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