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Real Time Insight


This morn, November U.S. non-farm jobs numbers showed us +203K additions.  That’s a modest beat, and in line with hefty ADP additions shown Wednesday. 

The biggest surprise?  The household unemployment rate came out at 7.0%. 

The Fed tracks this unemployment rate to decide on a taper in its bond buying.  That was the news of note this morning. 

Now, let’s see what the bond and stock markets did with the robust jobs data.  The U.S.10-year Treasury rate went from 2.88% to 2.92% before falling back to 2.90% on the news.  That means the prices of existing long bonds fell.  Stock futures kept strongly in green arrows going into the open.

That took me online to find Bill Gross’s post in Barron's from December 3, 2013, “What’s Keeping Me Up at Night”.  I took this excerpt out for our Real Time Insight discussion.

What Keeps Mohamed and Me Up at Night?

"Mohamed [El Erian], the creator of the "New Normal" characterization of our post-Lehman global economy, now focuses on the possibility of a "T junction".

The “T” is an investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world.

We are both in agreement on the perilous future potential of market movements. Mohamed's “T”, I believe, was meant to be more descriptive than literal, and is a concept, like the New Normal, that may gain acceptance over the next few months or years."

But aside from a financial nuclear bomb à la Lehman Brothers,

"Our actual scenario is likely to play out more gradually as private markets realize that the policy Kings/Queens have no clothes and as investors gradually vacate historical asset classes in recognition of insufficient returns relative to increasing risk."

In other words, Bill Gross’s base case is one where investor’s vacate historic asset classes (aka Investors exit BONDS).  This is killing off bond funds at places like PIMCO.
 
My RTI Question:  Tell Bill Gross What to Do with PIMCO’s business!

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