Gross Brings the Quirky and the Acuity
It is undoubtedly tempting for sober-minded financial journalists to skip right over the crazy anecdotes in Bill Gross's monthly commentaries and go straight to the conclusions about markets and the economy.
But what fun is that?
In his latest rant, Gross introduced us to Delos Roman, a bully from his high school class of 1962 who went on to live a hard-luck life and eventually reached out to Gross a few months ago for advice on how to invest a $50,000 inheritance.
It's not a flattering picture of Delos Roman, so we're guessing that the name is a pseudonym. Otherwise, we fear, Gross could at any moment now find himself being shoved in a locker at Janus Capital Group headquarters by a 6'4" septuagenarian with a body that "resembled that of Zeus, the God of Thunder."
As far as wacky imagery and anecdotes invoked in Gross commentaries go, these were first rate, ranking somewhere near the top with the description of his world-class shower and collateralized-debt obligations dolled up in "makeup, those six-inch hooker heels and a 'tramp stamp.' "
Still, if you'll allow a little literary criticism, his intended use of the high school bully as a metaphor for the world's central banks is a bit of a stretch. It seems to have something to do with policy makers being inflexible in their beliefs about the effects of monetary policy:
Their genetic makeup, like that of Delos Roman, seems to have been determined at origin and has since been centered on changes in the policy rate and the observation that higher short rates slow economic growth/temper inflation, and that low (or negative) interest rates do just the opposite.
His point in the commentary and a tweet that teased it is basically that this type of central-casting central-bank thinking is wrong and investors should indeed fight the Fed. To remind the reader of his credentials, he engages in a bit of told-you-so nostalgia about how he and sidekick Paul McCulley were early critics of the housing bubble and the Fed's role in creating it, which led one Fed governor to call him an "odd duck." Of course, as he points out, Pimco and a few others had "the last hoo-hah." He also seems a little bummed that he didn't make the cut for the "Big Short," even though Michael Lewis interviewed him for the book.
One of the most tragic pieces of collateral damage from Gross's nasty divorce with Pimco is that McCulley also left the firm, depriving the rest of us of his excellent commentaries. McCulley coined timeless Wall Street catchphrases like "shadow banking" and "Minsky Moment," and we sure could use him around to come up with an expression to describe the queasy uncertainty that so many feel right now when it comes to the outlook for financial markets. (Perhaps times like these when markets lack a much-needed catchphrase could be referred to as "McCulley Moments?")
Anyway, if you're the type who just likes to just skip to the most alarming part of Gross's outlook, it's that he sees "shades of 2007":
The household sector has delevered, but the corporate sector never did, and with Investment Grade and High Yield yields 200-1000 basis points higher now, what does that say about future rollover, corporate profits and solvency in many commodity-sensitive areas?
It will be tempting for the bulls to ignore Gross's warnings, but this odd duck continues to be right about a lot of stuff, especially when it comes to China. He tweeted in May that China's asset prices were at risk as a result of lower global exports, about two weeks before the Shanghai Composite Index began to crash. In August, he correctly predicted that a weakening Chinese yuan pointed to lower commodity prices and a strong bid to Treasuries.
In his latest commentary, Gross advised "don’t go near high-risk markets, stay safe and plain vanilla," without elaborating.
Let's hope poor ol' Delos Roman didn't buy $50,000 worth of ice cream.
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