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Bill Gross's Investment Outlook For July: It Never Rains In California
Does anyone really put much stock in Mr. Gross' ramblings. I mean, the comments are interesting, sometimes a bit bizarre. But after translating into English, there is often nothing new. As the saying goes, "There is no there, there."
Mr. Gross' ramblings aren't even numerically correct. I stopped reading after the first paragraph, so much was wrong with his hyperventilating prose.
Governor Brown's executive order does not say that "all of us simple folk should cut back water usage by a minimum of 25%". It says that restrictions shall be imposed "to achieve a statewide 25% reduction in potable urban water usage."
More importantly, it does not impose this requirement uniformly, as Mr. Gross states. Rather, if you've been good about limiting water usage, you don't have to cut as much. For example, San Diego residents have to cut usage by 16%.
Mr. Gross even gets basic dollars and cents figures wrong. He writes about water and rails, saying that the high speed rail project will cost at least $25B. Wrong. It's an overhaul of the state's water system that will cost $25B. The rail project will cost $68B. Even when it was originally on the ballot, the projected cost of $43B was above Mr. Gross' stated $25B.
I expect better accuracy from someone handling my money. With "research" like this, I sure don't want him buying any muni bonds or transportation bonds for me.
Okay, I admit it, I skimmed the rest of the article. I think Gross has got ETFs all wrong when he writes:
That an ETF can satisfy redemption with underlying bonds or shares, only raises the nightmare possibility of a disillusioned and uninformed public throwing in the towel once again after they receive thousands of individual odd lot pieces under such circumstances.
That may aptly describe the "escape valve" for mutual funds, but not for ETFs. The "disillusioned and uninformed public" can sell their ETF shares only on the open market. They can't redeem their shares like Authorized Participants (AP) can. And APs know that they will get a gazillion pieces; that's what they get when they redeem ETF shares under all market conditions. That's the way ETFs are designed to work.
If the market went into free fall, I suspect there would be no telling whether market prices would lag NAV (i.e. fall less slowly, which would normally cause APs to buy, not redeem ETF blocks from the sponsor), or whether the market prices would be falling faster than the underlying NAVs.
My uninformed speculation is that even in the latter case, APs would not be redeeming shares. Normally, when market price is below ETF NAV, an AP will buy the "discount" ETF, redeem it for its components, sell those components on the open market, and pocket the spread. But if those components are falling rapidly in price, the AP might not be able to unload them before they dropped below even the discount price at which the AP obtained them. So the APs might just sit on their hands.
Maybe there are regulations requiring participation. Or maybe APs really do try to catch falling knives. I'm interested in any other facts or thoughts on how ETFs might function in a market meltdown.
I find it a challenge to gauge Bill Gross. His long term bond trading record is undeniably brilliant. He guided PIMCO to enormous power and success. Yet some of his pronouncements and analyses seem superficial and deeply flawed.
The fact that he falls short in knowing the details of the California water policies doesn’t especially trouble me. He’s an investment expert and not a water management expert. We all think we know more than we actually do. One would hope that he would be better at not putting his foot in his mouth as he so frequently does.
But that is not Bill Gross. He is consistently loud, often offensive, and unfailingly arrogant. If anything, he is definitely opinionated. Perhaps these are necessary attributes to become a first-rate bond trader and money manager.
Bill Gross is enigmatic. His thin book. “Everything You’ve Heard about Investing is Wrong”, was warmly received by other investment gurus. In it, he is very sensitive to the plight of wage stagnation and its impact on our future GDP growth rate. He recommends zero taxes for the lower levels of our income earners.
In the introductions to each book chapter, some of his examples are pertinent and illuminating while others have a child-like character. His IQ is unfathomable from his writings, but high IQ is not a requisite for investment smarts or investment success.
As an ex-marine, if that’s ever possible, the only tactic he learned was a frontal attack. He surely applies that tactic when making financial decisions and when dealing with competitors. He wears his feelings and beliefs on his sleeves. I like that.
Although I trust that he believes what he says, I don’t believe that he is an especially insightful market forecaster. Like MFOer Sven, I prefer Paul McCulley’s market perspectives over the Gross viewpoints. That’s a tough call given Gross’ overall record. In this instance I vote for analyses substance over past outcome.
Some folks are luckier than others. Given the inconsistencies in his analyses, it is not clear if Bill Gross is highly skilled or just a lucky outlier over such a huge timeframe.
Comments
Governor Brown's executive order does not say that "all of us simple folk should cut back water usage by a minimum of 25%". It says that restrictions shall be imposed "to achieve a statewide 25% reduction in potable urban water usage."
More importantly, it does not impose this requirement uniformly, as Mr. Gross states. Rather, if you've been good about limiting water usage, you don't have to cut as much. For example, San Diego residents have to cut usage by 16%.
Mr. Gross even gets basic dollars and cents figures wrong. He writes about water and rails, saying that the high speed rail project will cost at least $25B. Wrong. It's an overhaul of the state's water system that will cost $25B. The rail project will cost $68B. Even when it was originally on the ballot, the projected cost of $43B was above Mr. Gross' stated $25B.
I expect better accuracy from someone handling my money. With "research" like this, I sure don't want him buying any muni bonds or transportation bonds for me.
If the market went into free fall, I suspect there would be no telling whether market prices would lag NAV (i.e. fall less slowly, which would normally cause APs to buy, not redeem ETF blocks from the sponsor), or whether the market prices would be falling faster than the underlying NAVs.
My uninformed speculation is that even in the latter case, APs would not be redeeming shares. Normally, when market price is below ETF NAV, an AP will buy the "discount" ETF, redeem it for its components, sell those components on the open market, and pocket the spread. But if those components are falling rapidly in price, the AP might not be able to unload them before they dropped below even the discount price at which the AP obtained them. So the APs might just sit on their hands.
Maybe there are regulations requiring participation. Or maybe APs really do try to catch falling knives. I'm interested in any other facts or thoughts on how ETFs might function in a market meltdown.
I find it a challenge to gauge Bill Gross. His long term bond trading record is undeniably brilliant. He guided PIMCO to enormous power and success. Yet some of his pronouncements and analyses seem superficial and deeply flawed.
The fact that he falls short in knowing the details of the California water policies doesn’t especially trouble me. He’s an investment expert and not a water management expert. We all think we know more than we actually do. One would hope that he would be better at not putting his foot in his mouth as he so frequently does.
But that is not Bill Gross. He is consistently loud, often offensive, and unfailingly arrogant. If anything, he is definitely opinionated. Perhaps these are necessary attributes to become a first-rate bond trader and money manager.
Bill Gross is enigmatic. His thin book. “Everything You’ve Heard about Investing is Wrong”, was warmly received by other investment gurus. In it, he is very sensitive to the plight of wage stagnation and its impact on our future GDP growth rate. He recommends zero taxes for the lower levels of our income earners.
In the introductions to each book chapter, some of his examples are pertinent and illuminating while others have a child-like character. His IQ is unfathomable from his writings, but high IQ is not a requisite for investment smarts or investment success.
As an ex-marine, if that’s ever possible, the only tactic he learned was a frontal attack. He surely applies that tactic when making financial decisions and when dealing with competitors. He wears his feelings and beliefs on his sleeves. I like that.
Although I trust that he believes what he says, I don’t believe that he is an especially insightful market forecaster. Like MFOer Sven, I prefer Paul McCulley’s market perspectives over the Gross viewpoints. That’s a tough call given Gross’ overall record. In this instance I vote for analyses substance over past outcome.
Some folks are luckier than others. Given the inconsistencies in his analyses, it is not clear if Bill Gross is highly skilled or just a lucky outlier over such a huge timeframe.
Best Wishes.