Today’s investment outlook entry at PIMCO is a great read. Bill Gross, perhaps as much as anyone in the world, has benefited by the incredible performance of fixed income (relative to equities) over the past 30 years. So when he questions the future efficacy of investment in sovereign fixed income–and even mentions the term “hard money“–we listen.
To be sure, fiat-based fixed income securities have been “the” investment of the past generation. Many believe this megatrend has run its course, but it hasn’t reversed itself yet on a large scale. The strategy of investing the majority of a portfolio in fiat-based fixed income products will of course keep working–until it stops working! [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
It is foolhardy to issue too specific of a prediction–especially when such prediction is issued by your humble writer–when it comes to the intersection of the following trends: 1) the increased issuance of fiat-based sovereign fixed income products, 2) the unparalleled manipulation of domestic fixed income markets by their respective central banks, and 3) various other experiments in fiat money printing, debt-to-GDP “limit testing”, and so forth. The bottom line is, fiat currencies are an ongoing experiment [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
Of course, the staff at Commodity HQ would say that, right? But before you click the “back” button on your browser, please digest a few choice quotes from the King of Fixed Income himself:
“…with dollar reserves widely dispersed in Chinese, Japanese, Brazilian and other surplus nations, it is likely to assume that there will come a point where 2% negative real interest rates fail to compensate for the advantages heretofore gained in buying sovereign bonds. China, for instance, may at the margin shift incremental Treasury holdings to higher returning commodity/real assets which might usher in a gradual or somewhat sudden reconfiguration of our current dollar-based credit system.” (The bolding is by the author–the italics are mine.)
Let me ask you this. As the global balance of power (both financial and otherwise) gradually shifts Eastward, would you rather be buying gold and silver along with China’s central bank, or would you prefer to take the other side of that trade? Of course, China can only keep buying more and more US Treasuries indefinitely for the next fifty years… right? Right?! Mr. Gross continues.
“Together, there is the potential for both public and private market creditors to effect a change in how credit is funded and dispersed – our global monetary system. What that will look like is conjectural, but it is likely to be more hard money as opposed to fiat-based, or if still fiat-centric, less oriented to a dollar-based reserve currency. In either case, the transition is likely to be disruptive and an ill omen for seafaring investors.” (Italics are mine.)
Remember, this is not a Ron Paul column. This is Bill Freakin’ Gross talking.
There are many popular, time-tested portfolio strategies a long term investor can implement with their own savings. Some portfolio strategies will achieve positive real returns in the next decade, and some will not. A prudent investor should take this month’s relatively minor correction in equities, as an opportunity to “gut check“: what are the real world possibilities for equities, fixed income, commodities and indeed currencies in the next decade? Inflation, deflation… sovereign defaults? Massive credit writedowns? Could we see a Dow at 6500 again? Or even 2,000? What about 20,000? [see also Three Reasons Why Gold Is Overvalued]
Stress testing a portfolio against all of these scenarios is not paranoid–it’s prudent. These scenarios are the reason we founded Commodity HQ, and indeed, I’m confident we’ll have a lot of ground to cover over the next five years. Don’t just take my word for it–ask Bill Gross.
Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.
Disclosure: The author is long gold and silver.
nothing surprising.. with the crises still going on, it is safe to hold money in bonds instead of stocks
[...] Investors at home will keep their eyes and ears open for any mention of “stimulus” in the coming weeks as “Operation Twist” nears an end later this month. Ben Bernanke is expected to testify before Congress later today, and as such, our ETF to watch for the day is the State Street SPDR Gold Trust (GLD); the precious yellow metal may experience volatile trading as investors digest and react to economic commentary from the Fed Chairman [see also Warning: Ignore Bill Gross' Hard Money Prediction At Your Own Risk]. [...]
[...] “It’s coming again” warned commodity legend Jim Rogers earlier this week. When asked about the future of the U.S. economy Rogers had a pessimistic outlook, as he feels that the global financial landscape is simply too volatile to avoid another recession. And what’s more, Rogers thinks this next one will be worse than 2008. He cites the recessions in 2002 and 2008, stating that the 2008 recession was so much worse because of higher debts. Now, in 2012, debts are even higher, leading Rogers to believe that the coming recession will be even worse [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] “It’s coming again” warned commodity legend Jim Rogers earlier this week. When asked about the future of the U.S. economy Rogers had a pessimistic outlook, as he feels that the global financial landscape is simply too volatile to avoid another recession. And what’s more, Rogers thinks this next one will be worse than 2008. He cites the recessions in 2002 and 2008, stating that the 2008 recession was so much worse because of higher debts. Now, in 2012, debts are even higher, leading Rogers to believe that the coming recession will be even worse [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] “It’s coming again” warned commodity legend Jim Rogers earlier this week. When asked about the future of the U.S. economy Rogers had a pessimistic outlook, as he feels that the global financial landscape is simply too volatile to avoid another recession. And what’s more, Rogers thinks this next one will be worse than 2008. He cites the recessions in 2002 and 2008, stating that the 2008 recession was so much worse because of higher debts. Now, in 2012, debts are even higher, leading Rogers to believe that the coming recession will be even worse [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] It seems that the collapse of the euro, and possibly a global financial market correction, has become more likely than not in the next few year. It started with the fiscal disaster otherwise known as Greece, which has public debt equal to 166% of total GDP. But as time went on, Spain, Italy, Portugal, and Ireland all joined the race, with the latter four nations all faced with debts totaling to more than 100% of GDP (and let’s not even think about France’s 87% ratio of the same caliber) [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] As a result, UNG and natural gas alike spiked, as investors saw that demand for this sputtering commodity had picked up over the last week and that maybe we have underestimated our need for the fossil fuel. UNG responded with its best day of 2012 and its best session in recent memory, not to mention that it traded more than 2.5 times its daily volume. Although the EIA report was the culprit of UNG’s monster session, the trading fury also helped the ETF on its way to profitability, as a number of positions were shifted about in the fund. Be very wary of UNG in the coming days, as a massive spike like this is almost always followed by a falling out. Trade accordingly [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] Recently, we had the opportunity to speak with Sal Gilbertie, President of Teucrium, to discuss sugar and the trends surrounding this soft commodity. Gilbertie was able to provide key insight for traders and long term investors alike as he shed light on the current sugar industry and some of the developments that may make this a sweet trade in the coming weeks [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] Keeping track of the movements of coffee futures can be a tall ordeal. As a soft commodity, coffee is well known for its volatility that sucks a number of traders in. While constantly monitoring blogs and market movements is a useful technique, utilizing the power of Twitter can also be powerful tool in your investing arsenal. Though its professional benefits are often overlooked, following the right people on Twitter can give you up to the minute information on how coffee is behaving and any trends the commodity is exhibiting. Below, we outline seven must-follow coffee Tweeple to ensure you have the best information at your fingertips [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] While most people think of coffee as their go-to beverage for the morning or a lazy afternoon, its prevalence as a financial instrument has soared in recent years. As a member of the softs family, coffee futures offer heavy volatility and strong liquidity (no pun intended) for those looking to make a trade. As a crop, coffee production is dominated by Brazil, followed by Vietnam, Colombia, and a slew of other emerging markets, though it is the developed markets who hog the consumption. As coffee’s popularity continues to grow, traders looking to make a play will need to keep an eye on a number of factors that drive the price of this hard asset [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] Equity markets have proven to be worthy contenders to even the wildest of roller coasters; nasty swings in valuations across presumably stable corners of the economy have eroded the confidence of many long-term, buy-and-hold investors. Aside from the rather obvious and ongoing, systematic devaluation of the U.S. dollar, many investors have turned to alternative asset classes for another reason. The appeal of commodities among investors of all walks has grown tremendously in recent years for two simple reasons [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] commodity will most often consist of exploration, pipeline, or refining companies which can offer a number of advantages over other options. A fair amount of these companies offer strong dividend options and high [...]
[...] It may seem like an asinine subject to some, but digging into exactly why deflation is bad can be a very useful exercise for investors and analysts alike. When prices decline, as stated above, individuals are incentivized to save their money and spend little. That can create a shock in an economy as there is suddenly less capital flowing around and businesses begin to struggle. This also discourages borrowing as there is little point to taking out a loan since you would have to repay the loan with dollars that are worth more than the dollars that were borrowed. This puts a pinch on banks which creates a ripple effect on the surrounding economy [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] Yet another volatile week for stocks as they were finally able to snap their six day losing streak, much to the delight of traders across the nation. With the euro zone still in shambles, and a slowdown threatening the Chinese economy, investors have been digging for good news wherever it can be found. The coming week will kick earnings season into full gear as the biggest companies across the nation detail how they fared in this most recent and volatile quarter. Below, we outline three ETFs that should see a fair amount of activity during the week ahead [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] For the majority of U.S. history, we have stood behind a currency backed by gold. That all changed on August 15th, 1971 when President Richard Nixon discontinued the gold standard in order to deal with a number of issues ailing the U.S. at the time. But since we have come off of the gold standard many would argue that our fiat currency is one of the primary reasons why our economy is currently suffering. Recent years have seen the Fed print money at will and pump back into the economy in an attempt to kickstart the recovery, an action that is simply not possible with the gold standard [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] a fan of Dr. Doom or not, these factors certainly have the potential to throw the global economy into a tailspin, potentially worse than 2008. Those looking to protect themselves before such an event have several [...]
[...] In a recent, rather grim article, bond king Bill Gross stated that investors can expect inflation to cut significantly into their returns in the coming years. In fact, he went as far to say that he believes the average return on a nominal basis will fall around 0%. His argument looks at a long history of both stocks and bonds and compares the past to the present to arrive at his final figure [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] However, there is a major difference in the futures rollover strategy, which Barclays believes will help to mitigate the effects of contango and backwardation. Most commodity indexes roll their exposure to the corresponding futures contract on a monthly basis on a pre-set schedule. This particular index can roll into one of a number of futures contracts with varying expiration dates, as selected by using Barlcays’ proprietary Capital Pure Beta Series 2 Methodology [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] CPER is another popular copper ETF, offering exposure to copper prices through futures contracts, but in a very different way. The first major difference lies in the fund’s structure: CPER is a limited partnership that actually holds copper futures contracts. With this structure, the fund holds no credit risk, but does expose investors to tracking error relative to the underlying index. Additionally, holders of CPER will be required to submit a K-1 come tax time. Perhaps one of the most appealing features of CPER is its “dynamic” methodology, which allows the index to make appropriate futures contract allocations based on current market conditions. Lastly, CPER is the cheapest fund on our list with its expense ratio of only 65 basis points [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] Gross cited zero percent interest rates and rampant money printing as the two key factors putting a damper on our current economic status. ”For the current shipwreck perhaps we have the Fed and other central banks to blame” said Gross. The low interest rates have created such low spreads that investments are being damaged, and if the damage continues, Gross feels that we could be in for a big pinch. “A lender will not easily lend money to an obese over-indebted borrower — that much is clear — but she will also not extend a check when the yield, carry and return on investment is so low that it cannot compensate for historic business model overheads” he stated [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]. [...]
[...] same success. Both ETNs have less than $1 million in assets and trade less than 600 times per day, putting them in danger of being shuttered in the near [...]
[...] Of course, along with those potentially appealing attributes comes plenty of risk; the path to commodity exposure is full of potential obstacles and pitfalls that can erode returns and lead to a less-than-optimal investing experience. Here are ten rules of thumb that will help you achieve a more successful experience investing in commodity markets [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk]: [...]
[...] CTNN is also structured as an exchange-traded note, meaning that investors will be exposed to the potential credit risk of the issuing [...]
[...] CTNN is also structured as an exchange-traded note, meaning that investors will be exposed to the potential credit risk of the issuing [...]