Bill Gross Says Bond Bull Market is Over

From Financial Advisor Online:

“Gross, a founder and co-chief investment officer of PIMCO, said in March that bonds may have seen their best days while making an argument for investors to own fewer. He reduced holdings of government-related debt in the Total Return Fund for the third straight month in September, after the securities accounted for 63% of assets in June, the highest since it held an equal amount in October 2009.”

Bill Gross is the manager of the largest fund in the world, the Pimco Total Return Fund. He has benefited from a 30 year bull market in bonds. Interest rates have fallen since 1980. Look at the chart here:

30 Year Treasury Bond RATES

And bonds have risen in price since 1980. For example,  the 10 year returns of the Wasatch Hoisington US Treasury Fund were 7.93% annualized, including a rough 2010 where the fund is down over 22% YTD according to Yahoo Finance. 7.93% likely handily beat your stock portfolio!

What does this mean for you? It means that if you own long term bonds, you might just lose your shirt. Sure your principal will be returned at maturity (depending on stability of issuer) but the current cash in value may be much lower than that, which would in effect keep you locked in to your low rate bond if you choose not to cash out at a loss.

Gross was also concerned about the Fed’s excessive money printing, i.e. Quantitative Easing”:

Bill Gross

“Check writing in the trillions is not a bondholder’s friend,” Gross wrote in his monthly investment outlook posted on Newport Beach, Calif.-based PIMCO’s Web site today. “It is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead end where those prices can no longer go up.”

My Take & Action Plan

This is one of those times when “safe” just may not be that safe. What I mean is, you may have your money in something you feel is safe, such as the bank or a bond or CD, but excessive money printing risks driving the dollar value down versus other countries’ currencies and making the things we buy MUCH MORE EXPENSIVE.

In other words, if your grocery bill goes up 20%, and your insurance premiums go up 20%, and the gas for your car goes up 20%, and your kids college tuition goes up 20%, and your property taxes go up 20% over the next two years, but you’re only earning 0.75% on your CD and you are getting no pay raises, life will become MUCH MORE DIFFICULT FOR YOU.

The Fed is forcing us to own other assets to protect the REAL value of what we own and to grow our money. Hence the rise in precious metals prices and other commodities vis a vis the US dollar.

What Might Really Be “Safe” Assets to Own

I personally think it is tremendously hard for the amateur to make money and protect their wealth these days. A diversified wealth protection strategy consisting of a basket of foreign currencies, precious metals, commodities, global stocks, and diversified cash flow sources: dividends from global stocks, owning businesses, rental income could help shield you from trouble.

If you’re considering a professional portfolio assessment, a retirement income planning analysis, or merely to talk about ideas that can protect you from what Bill Gross is worried about, contact me through my business, Walnut Hill Advisors, LLC at 781.393.0021. Or go to my website HERE to learn more about what we do at WHA.

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