Interesting People: Bill Gross and Mohamed El-Erian

Day shift leaving, and the night shift not yet arrived.

From the one and only Wikipedia and abbreviated as required:

" Pacific Investment Management Company, LLC (commonly called PIMCO), is an American global investment management firm with over 8,400 employees working in 13 offices across 12 countries. PIMCO is one of the largest active global fixed income investment managers in the world, with over $1.97 trillion in managed assets of 30 June 2014. The company runs the largest bond mutual fund in the world - the PIMCO Total Return Bond Fund, and provides portfolio management and asset allocation solutions for millions of investors worldwide......... PIMCO also has an ETF business, which had approximately $13.581 billion in assets under management, as of Jan. 21, 2014. "

Where did PIMCO come from?

Wiki:

" The firm was founded in 1971, launching with $12 million of assets. Previously, PIMCO had functioned as a unit of Pacific Life Insurance Co., managing separate accounts for that insurer's clients. In 2000, PIMCO was acquired by Allianz SE, a large global financial services company based in Munich, Germany, but the firm continues to operate as an autonomous subsidiary of Allianz.

..... The firm is known to have coined and popularized the phrase "the New Normal" in the aftermath of the subprime mortgage crisis in 2009. More recently, PIMCO introduced the "New Neutral" thesis to characterize a period of lower but stable economic growth, and interest rates to remain low for a longer period of time. "

And who founded PIMCO?

Wiki:

" PIMCO was headed by Co-Founder and Chief Investment Officer (CIO) William H. Gross, (better known as Bill Gross). "

Source: https://en.wikipedia.org/wiki/PIMCO

Well that is a truly marvellous company to found and run. A spectacular success. We can learn a lot from such a success story. Let's look further.

Who is Bill Gross?

Wiki:

" William Hunt "Bill" Gross (born April 13, 1944) is an American financial manager and author. He co-founded Pacific Investment Management (PIMCO). Gross also ran PIMCO's $270.0 billion Total Return Fund (PTTRX). "

Ah that Bill Gross! What more leaps out for a fast scan?

Wiki:

" In the 1990s he authored two popular-market books on investing, Bill Gross on Investing and Everything You've Heard About Investing is Wrong! In September 2008, by holding large positions in agency-backed mortgage bonds of Fannie Mae and Freddie Mac, Gross's funds netted U.S. $1.7 billion after the federal takeover of Fannie Mae and Freddie Mac, for which he had lobbied. "

Source: https://en.wikipedia.org/wiki/Bill_Gross

So it's clear that Mr Gross is a seriously heavy hitter, smart as the proverbial tack, not averse to play poker with the US Government over the rescue of an insolvent financial toy in which he has an certain interest. I also note that he has made a 20 million plus dollar donation to a university, as well as other substantial philanthropic donations to good causes.

Bill Gross is definitely at the top of the class when it comes to trading the bond market.

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Do you know Mohamed El-Erian?

Wikipedia:

" Mohamed A. El-Erian born August 19, 1958) is the Chief Economic Adviser of Allianz a multinational financial services company. He is the former CEO and coCIO of PIMCO, a global investment firm and one of the world's largest bond investors, with approximately $2 trillion of assets under management as of December 2013. PIMCO is a company of Allianz.

El-Erian serves as chair of President Obama's Global Development Council.[4]He is a columnist for Bloomberg View, as well as a regular contributor to the Financial Times and ...... "

Source: https://en.wikipedia.org/wiki/Mohamed_A._El-Erian

I think you get the picture about the capable and insightful Mr El-Erian, who recently spoke at the World Economic Forum.

Let's move on. (and that's it with the Wiki quotes!)

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I won't bother you with extensive texts copied from the biography of either of these gentlemen. Their photos are everywhere, and their published papers are well worth looking up and reading. I speak from personal experience of reading same.

But as an aside from the purely business arena, it is also worth considering the high level circles of society and leadership they inhabit, the level of the people they advise, and their track record for good judgment.

Fact is they took PIMCO to the top place in bond trading fund size based on the aggregate of skills required to do this.

That's why it's interesting that they have both resigned from PIMCO during 2014.

El-Erian retired during last March, and still is with Allianz as an Economic Advisor, but not connected to the bond trading ETF. Bill Gross announced his retirement this September.

At this point you might like to take a look at this blog article by Barry Ritholz, in particular the long term interest rates chart: https://www.ritholtz.com/blog/2013/01/long-interest-rates-1790-to-present/

That's a doozy of a bear trend in interest rates/bull trend in bonds!

Highest high for bonds in 300 years!

We need a closer look.

Here is the Fed Funds Rate since the early 1970s: https://www.tradingeconomics.com/united-states/interest-rate

The 1970s is particularly relevant because it represents the beginning of the period of success for the careers of Mr Gross and Mr El-Erian. It's the beginning of the final swing of the 300 year uptrend in the bond market, from which these two gifted gentlemen derived such success.

And now they have both walked away. From making a living running a bonds fund.

Hmmm.

Here is a chart I created at the start of 2014. At the time I said I thought it might take until middle-late 2014 to work out in some fashion.

I was a tad early. It's beginning to work out though, in my view.

Gold is not exactly a commodity. Neither is it an inflation hedge, in the short or medium term sense it does not correlate with bursts of inflation as they come and go. it functions as a long term inflation hedge. But more than anything gold is an anti correlated asset to real interest rates. Which is to say. when interest rates do not rise enough to cover the depreciation to fiat money by inflation, gold rises.

So it's not a bond, neither an inflation resistant bond like the TIPS. Gold is a bond competitor asset for when bonds lose value through default or erosion. So when money flows out of bonds looking for a home, stocks receive some of that money, and so does gold.

Did you notice that recently the Central Banks are publishing economic statistics which show a slowing down of "the recovery". They seem to fear "a recession" or something like that. Funny. It seems to me that these are the exact things they denied were happening for the past five years! Even though everybody else could see them. So why on earth would the central banks and their financial representative agencies do a turnaround on their positivity meme and begin to promote the idea that scary deflation is coming.

Could they be trying to herd capital back into bonds?

But if the central bankers are likely to succeed at this why did both Messr's Gross and El-Erian decide leave their former activities, now. And, as Marc Anthony said, they are all such insightful capable men - or something like that.

It's not quite time for precious metals, but it's close.

What will a 300 year turn in interest rates look like for gold? We should prepare for massive oddities in coming events.

Cheers

Argentus Maximus

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmNPrice.

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