October 18 2011 Tweet Email This
Scottrade: $7 Online Trades. Real-Time Stock Quotes #popstck-widget{float:left; width:190px;} #trend_stock ul li {font-size:8px; margin:0; padding:2px 3px;} #scottrade{background:#dfdfdf; border: 1px solid #A2A2A2; display: block; float: left; margin: 0 10px 5px 0; padding:2px; width: 174px;} #scottrade div a img{padding:0px;} *{font-family:arial,sans-serif;} #trend_stock{ border:1px solid #a2a2a2; display:block; float:left; overflow:auto; margin:0 10px 5px 0; width:178px; } .wdnewstext{ background:#b1e26c; padding:4px 0 0;} .wdnewstext h3{ color:#000; font-size:10px; margin:0; padding-bottom:5px; text-align:center; text-transform:uppercase; } #trend_stock p{ color:#000; font-size:10px; margin:0; padding:3px 0; text-align:center; } ul.stock_widgt{float:left; margin:0 0 5px; padding:0; width:100%;} ul.stock_widgt{padding-bottom:0px;} .stock_widgt li{ background:#eee; display:block; font-size:8px; margin:0; padding:2px 3px;} .stock_widgt li.odd{background:#fcfcfc;} .stock_widgt li.even{background:#fff;} .stock_widgt li a{ color:#003300; letter-spacing:-0.08px; text-transform:uppercase; text-decoration:none;} #trend_stock ul li {font-size:8px; margin:0; padding:2px 3px;} .stock_widgt li:first-child { border-top:1px solid #ccc;} .stock_widgt li:last-child { border-bottom:none;} Today's Trending StocksClick a Company to Research Now:
Polycom, Inc. (PLCM) eBay Inc. (EBAY) Nokia Corporation (NOK) Riverbed Technology, Inc. (RVBD) American Express Company (AXP) Western Digital Corp. (WDC) Fifth Third Bancorp (FITB) Core Laboratories N.V. (CLB) Abbott Laboratories (ABT) Newfield Exploration Co. (NFX) Brokerage PartnerBill Gross, manager of the world's biggest bond fund, is having one of his worst performances in a decade. Mr. Gross's flagship Pimco Total Return Fund is relatively flat this year, compared to a 4% gain for the benchmark Barclays Capital US Aggregate Bond index. Over the past 15 years, the bond king has rewarded investors with an annualized return of 7.2%, outperforming all rivals in bond land. Bill Gross was burned by betting against US Treasuries. At the time, his short call on US Treasuries attracted heavy media attention. Now, Mr. Gross has made another large bet, but it is receiving much less attention, when it deserves plenty.
As of September, Bill Gross decreased cash equivalents and money-market securities in the Total Return Fund from negative 9% in August to negative 19%. Cash is trash seems to be part of the new normal for Bill Gross. The negative cash position indicates that the fund is likely using derivatives and short-term securities as collateral in order to increase the fund's purchasing power via leverage. But what has Mr. Gross decided to purchase? Mortgage-backed securities, Mr. Gross has increased the fund's mortgage debt to 38% of assets under management, a 6% increase from August. Furthermore, the fund's duration has increased from 3.6 years in March to more than 7 years in September. Mr. Gross's new large bet on the long end of the curve implies that he does not believe yields are not done falling. One scenario is that another major economic event could send investors piling into bonds, but another explanation implies that Mr. Gross is betting on the Federal Reserve.
Investing Insights: Will Weak Bank Earnings Force Investors into Gold?
In regards to Mr. Gross's latest bond bet, Zero Hedge explains, "That's either what is called betting one's farm on Operation Twist, or betting one's farm that the next thing to be purchased by the Fed in QE3 or QE4 depending on how one keeps count, will be mortgage backed securities. As a reminder, the last time Gross saw such a surge in MBS holdings in the Total Return Fund was side by side with the phased out roll out of QE2 when it was unclear if the Chairman would be buying USTs or MBS."
Many speculated that Ben Bernanke was out of bullets when he announced Operation Twist last month. In 2004, Bernanke was one of three Fed economists that came to the conclusion that the 1961 version of Operation Twist was a failure. However, another go at Operation Twist simply shows Bernanke's willingness to experiment and even plan ahead. The future failure of the current Operation Twist will give Bernanke more political room to launch a more aggressive monetary policy in an attempt to give the stalling economy a boost. Bernanke once wrote that President Roosevelt's most important contribution to ending the Great Depression was "his willingness to be aggressive and to experiment." Based on this, it is not likely that Bernanke will stop at Operation Twist. Last month, former vice chairman of the Fed, Alan Blinder wrote a piece in the WSJ titled "Ben Bernanke Deserves a Break." He encourages more stimulus by saying, "I was a huge and enthusiastic supporter of QE1, which concentrated on MBS, but only a lukewarm supporter of QE2's Treasury purchases (it was better than nothing). Since then, a few scholarly studies have estimated that QE1 was indeed more powerful than QE2. So any move back toward dealing in MBS, or in other private-sector securities for that matter, is welcome."
With more academic professionals backing Ben Bernanke's hand in the markets, and studies actually suggesting that purchasing MBS was more powerful than purchasing Treasuries, I would say Bill Gross just may be on to something here. When it comes to dealing with private-sector securities, China may even provide Bernanke with ideas. Last week, China's sovereign-wealth fund purchased shares of the country's troubled banks in order to inject confidence into the economy. Bernanke is far from running out of bullets, there are plenty of poor investments out in the market to invest in with freshly printed dollars. Bernanke already has the bullets loaded as he told Congress last month, the Fed "will continue to closely monitor economic developments and is prepared to take further actions as appropriate to promote a stronger economic recovery in a context of price stability." In the short-term, Bill Gross may be betting on Operation Twist, but in the longer-term, QE3 looks like the safer bet.
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#more_entries{ margin-bottom:10px; border-bottom:1px dotted #DDDDDD; border-top:1px dotted #DDDDDD; display:block; float:left; font-family:"Helvetica Neue",Helvetica,Arial,sans-serif; margin-bottom:10px; padding-top:5px; padding-bottom:5px; width:100%; } #more_entries ul{text-decoration:none; padding:0; margin:0;} #more_entries ul li, #new_art_container ul li{margin:0;list-style-type:none !important; padding-bottom:2px; padding-top:2px; font-size:12px; line-height:18px; } #more_entries ul li:first-child, #new_art_container ul li:first-child{padding-top:0;} #more_entries ul li a, #new_art_container ul li a{text-decoration:underline;} #new_art_container{float:left; width:50%;} #more_entries h3{color:#003300;font-weight:bold; font-style:italic; font-size:12px; line-height:18px;} #more_entries h3 a{text-decoration:none; color:#333; font-style:normal;} #wscs_cat_rel{float:right; width:40%;} You Can't Afford to Miss These New Articles: 3 Technology Stars Trading Heavily Before Earnings DJIA Earnings Preview: McDonald's, General Electric, and Verizon 2 Consumer Staple Stocks with High Dividends Before Earnings Here’s Why Casino Stocks are Unlucky Now Dow Jones Shares Getting Drop Kicked Now More from: Buzz, CME, Features, FX, Hot Feature, Interest_Rates, Macro Debt Wall Street vs. Main Street: This Is the New Way of Banking for Main Street Will the EU Bailout Burden German Taxpayers? Is Bank of America About to Go Bust? GAO to Federal Reserve: Stop the Crony Capitalism Did the BOE Just Confirm the Long-Term Picture for Precious Metals? Tweet Email ThisDo You Want More Profits? Wall St. Cheat Sheet Premium newsletter subscribers have been crushing the markets with winning stock picks.
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