Pimco’s El-Erian says U.S. stock market rally has hit a wall
El-Erian makes a good point that stock valuations are not in-line with actually performance of the underlining companies. After reviewing some of the numbers, statistics and earnings that have been posted as of late, it looks more and more likely we will have another major correction in the next couple of months. I just don’t see the earnings continuing to be robust during a recession that the consumer is really tapped out when you look at their debt levels and stagnant incomes. 2009 is has been the worst year for getting a raise in about two decades.
News (Reuters):
Mohamed El-Erian, the chief executive of top bond fund manager PIMCO, on Tuesday said the rally in U.S. stocks had topped out because valuations have shot up too quickly.
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Pimco’s El-Erian thinks Fed to monetize more U.S. debt through treasury purchases
Surprise, surprise. Like we didn’t see this coming. Interest rates are right back up to the previous levels that was crushing the housing market. Unless something is done, what should happen, will happen and that means more foreclosures and the lowering of home prices. Ben Bernanke testified that the Federal Reserve would “not” monetize any more debt that it had already committed too, but I don’t see how that is possible unless we are going to raise interest rates enough to get the foreign participation of investors the U.S. government will need to soak up the trillions of dollar of new debt we will be issuing.
News (Reuters):
The rapid rise in bond yields will force the Federal Reserve to “engage again” in the purchases of U.S. Treasuries and mortgage-backed securities, Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., said Friday.
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Pimco limiting U.S. Treasuries exposure as supply builds
Good move on their part. With the amount of issuing that is going to take place over the next 12 months, I would not want to have too much into treasuries. Many economist are calling the dollar, “the next bubble to burst”. Now with President-elect Obama, he needs to get serious about creating jobs in our country.
I would say infrastructure in our highway system, transportation (rail) and energy should be his priority in reverse order. These type of projects are great for creating jobs. I would also do a mix of federal programs and private programs through our bidding process will be a nice balance. I think we are going to start seeing inflation pick up as soon as people start feeling more confident and that will be are next major crisis. You really notice inflation when the velocity of money speeds up through economic activity.
Release:
Fund manager Pimco is limiting its Treasury holdings amid expectations the United States will ramp up issuance to pay for a slew of new programs aimed at easing the credit crisis, Chief Executive Mohamed El-Erian told Reuters late Tuesday.
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Pimco’s Bill Gross says America is basically “for sale”
I love these type of comments. Here is some real honesty on the situation we are in. Because of the reckless lending and over-use of credit for 30+ years. Now people are over there heads and because they can not keep up with the payments on whatever asset was pledged as collateral. This puts these borrowers into a distressed situation where the asset now needs to be liquidated to cover the credit loan and that is why Mr. Gross is saying that America is for sale because in effect it is and people who either can gather savings ie: capital or have their own capital are going to profit from this misfortune. We made our bed so now we have to sleep in it. Good luck.
Press Release:
he manager of the world’s biggest bond fund said on Friday he is raising cash and waiting for asset prices to become more appealing.
Bill Gross, chief investment officer of Pacific Investment Management Co. or Pimco, said he was raising cash for a time when prices are attractive enough.
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Credit-Default Risk (CDS) Soars After Lehman Brothers Files for Bankruptcy
Much uncertainty on Wall Street today. According to Bloomberg, Lehman was a top 10 dealer in CDS or credit-default swaps. First fallout with a major market maker going under is the amount counter-parties are demanding for debt insurance has gone up 50% overnight in many cases.
Bill Gross of Pimco made this comment ““The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,” “It induces a tremendous amount of volatility and uncertainty.”” In this article they stated if a company insured $2 trillion in debt and went under it would induce 36-47 billion dollars in losses. This is not good and we might finally be over the edge with no way back.
CDS Article:
Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel.
Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.
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U.S. Must Buy Assets to Prevent `Tsunami,’ Bill Gross of Pimco
Well I have read many pieces of news but I have not seen one so blatantly calling for corporate welfare as this one and because the amount of pull Bill Gross has with a certain crowd I would not be surprised to see this happen. I want to pull the quote that really takes the cake for contradicting it self if you actually break it down. “The government needs to replace private investors who either don’t have the money to buy new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are reluctant to fund financial firms after losses on investments they made to support the companies, Gross said. “. My question is if we have a supposed “Free Market” then what is the governments role?
Article:
The U.S. government needs to start using more of its money to support markets to stem a burgeoning “financial tsunami,” according to Bill Gross, manager of the world’s biggest bond fund.
Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm’s Web site today.
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Bill Gross & Dan Fuss say new GSE deals need Treasury Support
I agree with Bill Gross of Pimco (world’s largest bond manager), I would also need government for any deal that involved funding our two troubled government sponsored enterprise (GSE). I am surprise this actually made news, I thought we all knew this was “implied“. Enjoy.
Release:
Two of the biggest U.S. bond investors said they would get involved in a capital raising by Fannie Mae and Freddie Mac as long as the U.S. Treasury participates in the new deals.
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