As it goes economists and analysts are paid life weather man to forecast the market not forecast it accurately. In fact the number of economists that have a grade of “B” or better over the last 30 years and outperformed the bond indices can be counted on two hands. The number of bond fund mutual fund managers that have seen a bonafide bear market in bonds over the last 30 years is similar. Yet with rates at abysmally low levels, Bond fund managers have seen their portfolio coffers rise by inflows of $700 billion over the last three years as returns have jumped by more than 10% over the same period. PIMCO Bond maven Bill Gross is one of those managers whose day to day regimen is to run bond portfolios at the largest bond fund family in the World. His relationship with Allianz SE, as a wholly owned subsidiary , has a major bearing on the market including policy at Allianz. Since many hedging strategies and portfolio construction are contingent on mimicking Gross strategies, it is interesting to note that the Nebob of New Normal is pretty bearish predicting the following for 2013:
*Stocks and Bonds will produce returns less than 5% after 4% gains on Treasuries and 13% on stocks in 2012-Bonds are in bubble territory and stocks represent a more compelling value as dividend yields remain almost double the yield on 10 year Treasuries. With Gross forecasting a declining dollar because of continued Fed easing and Fiscal Cliff II(the Sequal) coming in regard to the debt ceiling, the U.S. may be downgraded again and FIA caps should remain low throughout the year. Gross bet at the beginning of the year is outperformance in the mortgage- backed sector, ironically the same sector he started 2012 with before switching to Treasuries.
*Gold and other commodities will increase by 10-20% again and should be included in ANY portfolio as the dollar weakens and real interest rates decline-North American and Midland FIAs continue to offer unique exposure here in Gold along with Security Benefit Life. NALIC comes with stronger caps, better ratings and a renewal history.R*Unemployment will remain doggedly high at 7.5%, wages will remain stagant , economic growth at 1% and REITs will not duplicate their four year double digit S&P 500 out performance except in single family and mortgaged backed securities.
In contrast, Larry Fink CIO at Blackrock was even more negative after the fiscal cliff seeing it only as a stop at the ledge at the way over. Blackrock, the world’s largest asset manager has been more accurate adding that the ratio of revenue to spending is 6% .This, he says is unsustainable. The average family at $50k combined income is $1000 under the new rates whereas the $450k family will see a staggering $75,000 increase in taxes. Estates greater than $5 million will see rates jump to 40% from 35%. All in all a very disappointing outcome and fiscal stiff for investors according to the first and second largest asset managers in the World.