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Bill Gross to Investors: Run Away!
Gross said on CNBC, "I think Treasuries are the most overvalued asset in the world, bar none." He went on to say that he and his team were moving out further on the credit spectrum and buying AA- and A-rated bonds, although it was too soon to move into the high-yield arena. He argued that it was difficult to justify investing in Treasuries, given expected levels of inflation.
Look how little respect TIPS (treasuries with actual inflation protection) are given. You will note that they were the last ones to be mentioned in the article.
Investors who want a longer-term focus might want to consider the iShares Lehman 10-20 Year Treasury Bond ETF (NYSE: TLH). And for folks who want protection from inflation, the iShares Lehman TIPS Bond ETF (NYSE: TIP) fits the bill.
It would seem that I would want inflation protection, since Treasuries are the most overvalued asset in the world, bar none ... given expected levels of inflation. But hey, maybe that's just me.
As a side note, thanks for recommending the 10-20 year non-inflation treasury bond fund first though (the very asset that Bill Gross is telling us to run away from), just in case I want the most overvalued asset in the world, bar none without any inflation protection whatsoever.
I'm wearing my sarcasm hat today and it is quite heavy. I'm also using it as a cushion when I beat my forehead against the top of my desk out of frustration and despair. Sigh.
Seriously. I think I might get a welt from this.
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
16 hours ago
8 comments:
Stag,
I looked at Pimco's Total Return Fund a while back. The fund is enormous and has various classes (mainly of fees). I believe the fund is the worlds largest. Per Finra, one class of the fund (PTTAX) has about 13B in assets, a 3.75% load and a .90% annual expense ratio.
Now Gross is a good manager, but those fees are tough to overcome. Worse still, the fund has a dismal tax efficiency so I won't go near it.
The annual returns for PTTAX (after load, expenses & yearly federal taxes):
1yr: 3.94% (that 1st year load is a killer)
3yr: 2.97%
5yr: 2.71%
10yr: 3.78%
For comparison, Vanguard's Intermediate Term Treasury Fund's annual returns (after taxes & fees):
1yr: 12.4%
3yr: 5.59%
5yr: 3.34%
10yr: 4.46%
Both funds have durations of about 5 years. On an after tax & fee basis, I'm not sure sure the worlds biggest bond fund can outpace inflation let alone a safe investment like treasuries.
Like you Stag, I forsee low returns over the next decade. That makes controlling fees and taxes all the more important imo.
Thanks for your sarcasm. LOL. I spotted the hypocrisy and thought the same exact thing.
This is not a plug for Schwab (trust me) but for small savers they've lowered their minimum purchase to $ 100 and $ 1.00 for additional contributions for their TIP fund SWRIX. The 0.65% expense fee is steep, but I'm cashing out in three years and it comes out cheaper (and easier to contribute to) than the iShare TIP.
Stag,
http://cxa.marketwatch.com/finra/MutualFundCenter/Snapshot.aspx?symb=PTTAX&Type=FUND
From my previous post - the finra info on Pimco's PTTAX fund.
If you and/or your readers get a chance, check out the FINRA site. It has some great mutual fund analyzer/expense tools. At low returns, many funds with a 1.5% annual fee will make about the same amount in fees as their clients will make (on an after tax basis) in total returns.
What a disgrace. It's tragic that the fed & gov't are pushing people to wall street in order try & beat inflation. The greatest story never told.
MAB,
Good grief! I never even bothered to look at those fees. I'm in TIP with LOW expenses (0.2%). Most of my TIPS have no expenses though, since I bought them directly from the government.
No wonder he's in a seemingly bad mood about the future (as should his investors).
River Dawgs,
You might consider the 1.2% I-Bond these days. The rate changes on May 1st and I doubt very much it will stay at 1.2% (over inflation). It is tax deferred for up to 30 years, the rate is locked in for 30 years, but you can also cash it out early (must hold one year, lose three months interest if you cash out before five years).
This is not investment advice. It is why don't you check it out and see what you think advice.
Super easy to buy. You can buy them at most banks by simply filling out a one page form and writing them a check. The I-Bonds will show up in the mail a few weeks later.
http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
Psssttt... somebody else thought it was a good deal... the government... you used to be able to buy more in a calendar year. That all changed on January 1st though.
MAB,
At low returns, many funds with a 1.5% annual fee will make about the same amount in fees as their clients will make (on an after tax basis) in total returns.
Reminds me of the guy trying to sell me an inflation protected bond fund that had expenses as high as the expected real returns. When expenses exceed 1.5% on an investment guaranteed to only make ~1.5% (after inflation but before taxes) you know you are in big trouble.
I did have a nice (long) chat with him though. He was just trying to earn a living. I believe I sufficiently scared him with a few of my hand drawn charts. He knew he wasn't going to make the sale early on but really did want to know why I was so bearish. Based on what I said then (this was a few years ago), I'm guessing he now has post-traumatic stress syndrome. It is actually a bit worse than I thought it would be. Sigh.
"but really did want to know why I was so bearish"
If so he'll never make it as a salesman. My college buddy tried his hand as a realtor after finishing his port-ROTC active duty commitment. After a few months he realized he'd never make it because he understood the numbers didn't work for most buyers (this was in 1998-99). To sell somebody else, you first have to sell yourself.
I find all the kool-aide drinking, upside-down, walk-away realtor reports interesting. But not surprising.
AllanF,
I'm going to try to combine two of your points and convert it into a pet peeve of mine if you don't mind.
1. To sell somebody else, you first have to sell yourself.
2. I find all the kool-aide drinking...
http://dinosaurtrader.blogspot.com/2008/04/is-dennis-kneale-worth-1500.html
I don't really know why he irritates me so much (the sheer arrogance perhaps?), but he does. I finally found a solution. I immediately flip the channel to Bloomberg.
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