Bill Gross on the End of the Great Bond Bull Market
Sep 13, 2023
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Bill Gross, known as the 'Bond King', shares his insights on the financial landscape after a historic bond bull market. He reflects on his illustrious career and the evolution of bond investing since the 1970s. Gross analyzes modern inflation challenges, drawing parallels to past crises. He discusses the impact of current interest rates and fiscal policies on investment strategies, particularly in sectors like oil and gas. The conversation touches on emotional trading strategies and highlights potential opportunities in the market, revealing what keeps him optimistic today.
Self-hedging with short-duration bonds created a golden opportunity in the bond market during the high-interest rate period of the 1970s and 1980s.
In a bear market, both relative and absolute performance are important, with the latter crucial for retaining clients and navigating market cycles effectively.
Deep dives
Bond Market in the 1970s: High Interest Rates and Self-Hedging Bonds
During the 1970s, the bond market experienced high interest rates, with rates reaching 15% in 1981. However, due to the short duration of 30-year Treasury bonds at the time, it was possible to self-hedge. For example, even if rates went up to 18%, investors wouldn't lose money. This created a golden opportunity in the bond market.
Surviving a Bear Market and Achieving Relative Performance
In the face of a bear market, it's important to consider both relative and absolute performance. While relative performance is important for attracting and retaining clients, absolute performance is crucial during significant bear markets. Even if a fund outperforms the market, clients may still leave if the absolute performance is poor. It is necessary to navigate market cycles and take advantage of lucrative opportunities when they arise.
Trading Bonds in the Pre-Computer Era
When the speaker first started at PIMCO, there were no computers or clearing houses for overnight trades. Physical trading of bonds and stocks was challenging, leading to illiquid markets. For instance, at PIMCO, bonds were kept in a vault, making it difficult to transport them to New York for trading. These limitations highlighted the importance of finding alternative means to facilitate trading and increase liquidity.
The Key to Successful Investing: Long-Term Perspective and Secular Trends
Taking a longer-term view and focusing on secular trends is crucial for successful investing. Emotion and short-term trading can impede investment performance. By considering factors like inflation, demographics, and globalization, investors can develop a three to five-year forecast for financial instruments. This perspective allows investors to capitalize on longer-term market movements while maintaining a steady approach and avoiding emotional decision-making.
Bill Gross became known as the Bond King during his legendary, multi-decade run at Pimco, eventually growing the company to manage trillions of dollars. Of course, that success coincided with a remarkable bond bull market -- a bull market that came to a screeching halt over the course of the last two years. So what does Gross think of markets today? And could there ever be a new bond king in this environment? During a live episode of the Odd Lots podcast, taped at the Future Proof conference in Huntington Beach, California, Gross talked about the state of the market, reflected on his career, discussed the things that make him happy today, and addressed old rivals and competitors.
