Pimco’s Bill Gross pulls no punches in assessing America’s investment alternatives in his freshly minted commentary for May. He’s been wrong before, of course. It wasn’t that long ago that he predicted that the Fed wouldn’t keep raising interest rates. No matter, as the predictions keep coming:
“Higher inflation, higher personal and corporate taxes, and a lower dollar point U.S. and global investors away from U.S. assets and toward more competitive economies less burdened by health and pension liabilities – those personified by higher savings rates and investment as a percentage of GDP,” writes Gross, manager of the world’s biggest bond fund. If such a hint at his thinking doesn’t suffice, he clarifies with, “Need I say more than to sell U.S. assets and buy Asian ones denominated in their local currencies; or if necessary to hire a global asset manager with sufficient flexibility and proper foresight to thrive in an increasing difficult investment environment?”
Bashing the U.S. investment outlook hasn’t exactly been out of favor in recent years, although it’s been a losing proposition when it comes down to dollars and cents. Despite the macroeconomic smoking guns that have been casting dark clouds over America’s prospects, investors the world over have seen fit to ignore the strategic and favor the tactical. And it’s paid off handsomely, particularly in the stock market.
A determined investor who bucked the then-bearish crowd and bought the S&P 500 Spider ETF in early 2003 is now looking like a genius, courtesy of the fund’s 14.11% annualized return for the 36 months through yesterday, according to Morningstar data. That’s well above the S&P 500’s long-term performance, and probably a good deal more than reasonable minds expect going forward.
In any case, the rear view mirror doesn’t reflect quite as favorably on bonds. The Vanguard Total Bond Market Index fund, which tracks the Lehman Aggregate Bond Index, has more or less treaded water over the past 36 months, posting a spare 2.43% annualized return through yesterday–about half the current yield on the 10-year Treasury.

Continue reading →

“It’s worrisome that people would look at me as dovish and not necessarily an aggressive inflation-fighter,” Ben Bernanke reportedly said on Saturday to CNBC’s Maria Bartiromo, as she recounted via LATimes.com.
Bartiromo yesterday said she talked with the Fed chairman over the weekend at the annual White House correspondents’ dinner, where she engaged the head of monetary policy on the matter of whether “the markets and the media [got] it right last week in terms of its reaction to your congressional testimony,” the CNBC correspondent explained on Monday. Bernanke insisted that his aim was only to allow the Fed some “flexibility” in its management of the nation’s money supply.
But if Bernanke intends to be the voice of persuasion in proving his hawkish mettle, he still has his work cut out for him. Indeed, there’s a thin line between espousing the value of flexibility and being seen as dovish in Mr. Market’s mind these days.
The next big chance for enhancing or diminishing Bernanke’s newly acquired dovish patina comes next week, on May 10, when the Fed’s FOMC convenes to consider interest rates again. To raise or not to raise will be the question, of course, although the futures markets is betting that another 25-basis-point hike is in the offing. But this time the stakes will be higher than with past rate hikes, which have been coming steadily in 25-basis-point increments since June 2004.

Continue reading →

If you’re wondering why Fed Chairman Ben Bernanke is being cagey when it comes to discussing when and if interest rate hikes will end, and for how long, take a look at the dollar.
The almighty greenback looks something less than invincible these days. The U.S. Dollar Index is off by roughly 5% from mid-March. The decline was unfolding for much of April, although the sellers found inspiration anew after Mr. Bernanke’s suggestion last week–ever so carefully worded–that the central bank’s rate hikes of the last two years may pause, if only temporarily, at some point in the near future.
As we wrote on Friday, this “new transparency” from the Fed chief isn’t quite the epitome of the clarity that Bernanke has formerly embraced as the ideal for the central bank. To read his speeches of years past one would think the man atop the central bank would settle for nothing less than unambiguous broadcasting on the matter of monetary policy. Then again, perhaps his subtle retreat from that position is unsurprising, considering the delicate balancing act Bernanke faces in navigating the increasingly rocky shoals of monetary policy in the months and years ahead.

Continue reading →

Here’s a news flash for Congress: there are no quick fixes. That statement of fact won’t stop the pandering, but we’re still of the belief that checking in with the truth as it exists, rather than as pols imagine it, is healthy.
Easier said than done. True to form, politicians are inclined to find a silver lining in an otherwise threatening cloud. When the cloud is energy, the knee-jerk reaction in Washington is to make grand proclamations that have no immediate relevance (such as President Bush’s claim that America should decrease its dependence on Middle East oil), or else devise near-term “solutions” that are short on solution and long on drumming up votes.
The latest examples comes by way of the $100 rebate plan backed by the Republicans, which was spurned by at least one Democrat in the Senate as being ineffective, albeit by offering too little. Accordingly, the Democrat upped the ante and suggested a $500 rebate.

Continue reading →