October 8, 2006
The End of History and the Last Bond Bull Market
Bill Gross
They say “Life is a journey, not a destination” and I suspect for the most part that’s true. One-time lottery winners revel in their fifteen-minutes of profligacy, but since their journey rarely involves anything more strenuous than a trip to the 7-Eleven® Lotto counter, it’s hard to imagine much passion or intensity beyond the discovery of the magic ticket. Better to have entered a multitude of lifetime Lottos – advancing and falling back like a two-step forward, one-step back Sisyphus than to have hit the big one out of the blue. Building relationships, families, and careers seems personally much more valuable when viewed as an experience rather than a backward-looking achievement. God may have created the world in six days and rested on the seventh, but while relaxing in a heavenly easy chair, I’ll bet He (She) was thinking about all the fun that was had between Monday morning and Saturday night.
Not to trivialize this thought but I must tell you that my most recent affirmation of the “Journey vs. Destination” proposition has come from my new iPod and the building of a playlist. Now to you youngsters, the advent of the iPod must have seemed like one more small technological step for man – but for me it was more like a great leap for mankind. I mean just turning the thing on and off was and remains a major achievement for me, let alone creating a library of hundreds of CDs inside a cell phone look alike. But my wife Sue is into creative change and keeping young, so last month she bought me an Apple and an iPod and we spent enough time at the local Mac store here at the mall to figure out how to transfer music from my hundreds of CDs to this little itsy-bitsy thing I could barely hold in my hand. My God what fun. Not playing the music mind you. I haven’t had time for that. It was the creation of the playlist that was the fun; deciding which songs to keep, which to delete; transferring them into the Mac and then to the iPod; sifting, culling, condensing, organizing – two-steps forward, a moment of technological panic then one-step back. Now that I’ve created a playlist of 2,000 songs, however, I’ve sort of reached a temporary destination. I mean how many songs can you really play? Can I possibly listen to all of this music in my sleep? Hardly. I’ve decided though that since the experience was so much fun, I’ll just have to root for Steve Jobs or Bill Gates or some other technological wizard to come up with the next new thing so I can keep on “experiencing” as opposed to “reaching destinations.” What a funny little game life can be sometimes.
My “experience” in recent days in the bond market has been something I wouldn’t want to be replicated on an iPod playlist: too much tension, too many sleepless nights. Market turning points have a habit of doing that and this time has been no exception. That statement, of course, explicitly announces that I think the high in interest rates has been reached, something I rather brashly and perhaps recklessly announced on Bloomberg TV and Reuters on July 7th. Chock up another “Dow 5,000” perhaps – sometimes I just can’t help myself when it comes to the press. Nonetheless, despite the rather cryptic pronouncement that the bear bond market was over, an enormous amount of PIMCO time has been spent in the formation of that decision, with piles of it, now decorating my trading desk, provided by investment grade corporate head Mark Kiesel and up-and-coming PIMCO professionals such as Saumil Parikh and Rahul Seksaria. Not that that’s proof of anything, but we have done our homework. As I begin to describe some of the results let me first point out that the end of a bond bear market and the peaking of Fed Funds are not necessarily coincident. As a matter of fact, bond prices usually bottom several months before the last FF hike as the market begins to anticipate the Fed, which in turn is attempting to anticipate the economy and inflation.
Read more…
They say “Life is a journey, not a destination” and I suspect for the most part that’s true. One-time lottery winners revel in their fifteen-minutes of profligacy, but since their journey rarely involves anything more strenuous than a trip to the 7-Eleven® Lotto counter, it’s hard to imagine much passion or intensity beyond the discovery of the magic ticket. Better to have entered a multitude of lifetime Lottos – advancing and falling back like a two-step forward, one-step back Sisyphus than to have hit the big one out of the blue. Building relationships, families, and careers seems personally much more valuable when viewed as an experience rather than a backward-looking achievement. God may have created the world in six days and rested on the seventh, but while relaxing in a heavenly easy chair, I’ll bet He (She) was thinking about all the fun that was had between Monday morning and Saturday night.
Not to trivialize this thought but I must tell you that my most recent affirmation of the “Journey vs. Destination” proposition has come from my new iPod and the building of a playlist. Now to you youngsters, the advent of the iPod must have seemed like one more small technological step for man – but for me it was more like a great leap for mankind. I mean just turning the thing on and off was and remains a major achievement for me, let alone creating a library of hundreds of CDs inside a cell phone look alike. But my wife Sue is into creative change and keeping young, so last month she bought me an Apple and an iPod and we spent enough time at the local Mac store here at the mall to figure out how to transfer music from my hundreds of CDs to this little itsy-bitsy thing I could barely hold in my hand. My God what fun. Not playing the music mind you. I haven’t had time for that. It was the creation of the playlist that was the fun; deciding which songs to keep, which to delete; transferring them into the Mac and then to the iPod; sifting, culling, condensing, organizing – two-steps forward, a moment of technological panic then one-step back. Now that I’ve created a playlist of 2,000 songs, however, I’ve sort of reached a temporary destination. I mean how many songs can you really play? Can I possibly listen to all of this music in my sleep? Hardly. I’ve decided though that since the experience was so much fun, I’ll just have to root for Steve Jobs or Bill Gates or some other technological wizard to come up with the next new thing so I can keep on “experiencing” as opposed to “reaching destinations.” What a funny little game life can be sometimes.
My “experience” in recent days in the bond market has been something I wouldn’t want to be replicated on an iPod playlist: too much tension, too many sleepless nights. Market turning points have a habit of doing that and this time has been no exception. That statement, of course, explicitly announces that I think the high in interest rates has been reached, something I rather brashly and perhaps recklessly announced on Bloomberg TV and Reuters on July 7th. Chock up another “Dow 5,000” perhaps – sometimes I just can’t help myself when it comes to the press. Nonetheless, despite the rather cryptic pronouncement that the bear bond market was over, an enormous amount of PIMCO time has been spent in the formation of that decision, with piles of it, now decorating my trading desk, provided by investment grade corporate head Mark Kiesel and up-and-coming PIMCO professionals such as Saumil Parikh and Rahul Seksaria. Not that that’s proof of anything, but we have done our homework. As I begin to describe some of the results let me first point out that the end of a bond bear market and the peaking of Fed Funds are not necessarily coincident. As a matter of fact, bond prices usually bottom several months before the last FF hike as the market begins to anticipate the Fed, which in turn is attempting to anticipate the economy and inflation.
Read more…
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