Bill Gross: Sell equities and buy Treasuries

Bill Gross is a bond man.  In fact, he is often called the “Bond King” because Pimco, the organization where he is founder and Co-Chief Investment Officer, is the largest bond fund in the world. In Bondland, what Gross says has a lot of weight.

And Gross has been talking about a “new normal” of deleveraging, deglobalization and reregulation. In his view, this means weak consumer demand counterbalanced only by heavier government intervention, leading to slow growth for the foreseeable future (See my post ‘Gross: The new normal for “the next 10 years and maybe even the next 20 years”’).  In essence, he sees a scenario that is bullish for bonds (especially longer duration types like the 10-year and the 30-year) but not particularly bullish for shares.

But, Gross is also reducing risk.  There has been a huge run-up in corporate bonds, especially in high yield bonds. And Gross believes now is the time to take profits and reduce exposure to riskier assets, a view he first put forth in his monthly newsletter at the beginning of July (see my post, “Bill Gross: the new normal means investors should shun risk”).  And Gross is re-balancing his portfolio quite heavily to reflect this “glass half-empty” bias. His portfolio has its heaviest concentration in five years of Treasuries, considered the U.S.’s risk-free financial assets.

Below is a video of Gross talking on CNBC along with two other market experts, Bob Doll and Dan Tishman, regarding their view of the economy and financial markets. Gross goes as far as to say point blank that one should sell equities and other riskier assets like high-yield bonds.

Before you watch the video, be aware that two other formerly bearish analysts, Richard Bernstein and Jim Grant, have flipped to bullish recently.  Gross mentions Grant by name and disagrees with his take on the economy, calling it “disingenuous.” Articles by or on Bernstein and Grant’s view’s are below the video.

This is the third in a series of posts about reducing risk. See also:

Related articles
From Bear to Bull: James Grant on Recession and Recovery – Jim Grant,
Bernstein: Best Value In Junky Names –

  1. Fred says

    Who is Bill Gross to call anyone “disingenuous.”

  2. kynikos says

    Wasn’t Gross talking down Treasuries months ago?

    1. Edward Harrison says

      He was indeed. Any market analyst is bound to talk his own book and we need to be able to discern how much of what they say is for real and how much of it is to promote their own market view. in Gross’s case, his view is underpinned by his gigantic bond portfolio. Pimco simply is to large to make market moves quickly enough to profit from individual statements Gross makes. So you have to think he is fully behind these views as his investment positioning attests.

      Gross has been singing the same tune about the new normal – and the resultant government intervention – for some time. Early in the year, he felt it meant MBS would outperform. they did. now, he thinks the rally in riskier assets has been way over the top and he is scaling back accordingly. I share that view.

  3. David says

    Edward….if you don’t mind me asking. Whether you listen to Bill Gross, Robert Prechter, Henry Blodget, Noreil Rubini or the myriad number of other pundits all you can come away with is either a mixed bag of self serving platitudes, contradictory analysis or well reasoned opinions that seem to gravitate from one extreme to the other.
    In your opinion is it possible to discern the truth anymore? I literally mean the truth not the likelihood of a forecast or prediction. Truth that you can use as a foundation to make some reasonable choices and be somewhat assured of a logical outcome?
    Or is there only hype, misrepresentation, disinformation an un-level and completely compromised playing field where nothing can be known?
    As Eliot Spitzer recently said “you can’t win so don’t play” as true as that may be, many of us don’t have the luxury of making no choice. And yet, how does one make a choice in a void not of their own making where process, integrity and reason no longer seem to apply.
    I look forward to your reply if you have some time.

    1. Edward Harrison says

      From a retail investor point of view, the investment world is challenging in times like these. Buy and hold is not a good strategy in a bear market environment. I still believe we are in the middle of a secular bear market and that rallies like the one we are now seeing fool people (especially retail investors) into believing otherwise.

      My take on this is the same as the one I had on housing: forget about the pundits and use common sense. If it sounds too good to be true, it probably is. By that I mean we have seen a 60% upside move in shares. Yes, we are well off the all-time highs. But, does it seem logical that this rally should continue after such a remarkable run? Probably not. That would mean taking a more defensive posture to reduce risk due to heightened market uncertainty.

      The example would be house prices circa 2004. Could they continue to rise? yes. And they did for 2 more years. But, is the market you are in and the individual investment you are making a good deal? If you are buying a house at 5 times salary and for a mortgage of 40% greater than the equivalent rent, those signposts should be telling you that investment risk is high. A lot of people ignored this fact at their peril.

      here again the same is true. There are plenty of reasonable assets. But there are many bubbly stocks out there already. In an environment where stocks have already risen 60% it makes sense to me to reduce exposure to riskier assets and go defensive.

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