Daily Reads: Buffet Bashes Bonds, Has Bill Gross Lost His Touch?February 10th, 2012 by David Waring
LB Take: Greg Harmon has a good point – what ETF is most sensitive to changes in interest rates (or in formal language has the longest duration)? The PIMCO 20+ Year Zero Coupon US Treasury Index Fund ZROZ. Greg has done some technical analysis which indicates that there may be a major drop in price in ZROZ coming. If this opinion is correct, interest rates (at least for longer dated bonds) are about to rise.
LB Take: In the last 12 months, the king of Mutual fund stock investing announced that he was stepping down after 5 years of bad performance. Is Bill Gross Next? I don’t think so. Bill Gross had one really bad year, and, his bad year came from doing something that most mutual fund managers avoid: having a market view and acting on it. Yes, he was wrong to avoid treasuries but most of time, he is dead on. The only way to achieve Alpha or above average market performance is to have a view that is a different than most of the market. I personally own the Pimco Total Return Fund (PTTAX) in my 401K, so I am not very worried that he has lost his touch.
The article does mention one point . . that Pimco may be getting additional scrutiny from regulators because of its size. Is the government going to dictate trading decisions (limit managers ability to act on their best judgement because of its potential impact on the market). This is a very scary direction that regulations could be going.
LB Take: No need to read the article. I can summarize it in a few sentences. Every year, Warren Buffet sends an annual letter to shareholders of Berkshire Hathaway (BRK.A) where he expresses his views about investing. This year, he was very negative on bonds. Yields are at historic lows. If there is any inflation, investors in bonds could seeing a real rate of return of close to zero. This is second world class investor (Larry Fink of BlackRock being first) to bash bonds in the course of 48 hours.
Would love to hear your thoughts on any or all of the above.