Gross: Anything but .01%

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Bill Gross, co-founder and co-CIO of PIMCO, is to my mind one of the shrewdest money men around. His monthly newsletter, this month entitled “Anything but .01%”, therefore always makes for thought-provoking reading.

The following are a few excerpts from the report:

“Almost all money market accounts – totaling over $4 trillion dollars, yield close to nothing, so close to nothing that I mistakenly did a double take when reviewing my monthly portfolio statement. “Yield on cash”, read the buried line on page 15 of the report, “.01%”.

“Well now, I say to myself, this is very interesting from a number of different angles. If I was hoping to double my money, it would take approximately 6,932 years to get there at that rate! Secondly, being a savvy professional investor and all, I knew that money market funds actually earned 20 basis points or so on my money, but in this case were allocating a paltry one basis point to me.

“Let me tell you what I’m doing. I figure, why not just buy utilities if that’s what the future American capitalistic model is likely to resemble. Pricewise, they’re only halfway between their 2007 peaks and 2008 lows – 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5-6% not .01%! In a low growth environment, it seems to me that a company’s stock should yield more than its less risky debt, and many utilities provide just that opportunity. Utilities and even quasi-utility telecommunication companies now yield between 5 and 6%, whereas their 10- and 30-year bond yield less and at a higher tax rate to you the investor.

“Look at your monthly statement, zero in on that .01% yield and say to yourself, “I’m as mad as hell, and I’m just not going to take this anymore!” You can’t buy the Burlington Northern – Warren Buffett has scooped that up – and most other choices offer tempting returns, but potential bullets as well. Buy some utilities. It may not be as much fun as running a railroad, but at least you’ll know who to call if the lights go out.”

Click here for the full article.

Source: Bill Gross, PIMCO – Investment Outlook, December 2009.

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3 comments to Gross: Anything but .01%

  • Lauren

    I am a fan of Gross (incidentally went to high school with his son) but wasn’t aware he had a newsletter. Thanks for the tip! This excerpt is brilliant – as sometimes the most seemingly obvious things are.

  • Sheran McCoy

    This is without a doubt the most reckless comment I’ve ever heard come out of the mouth of a supposed intelligent investor. It matches his bullish comments on GM debt from a few years back in its stupidity.

    Buying something for its yield is probably the worst reason to make an investment. Buying a risk asset for the risk-free and liquid part of your portfolio would actually put a broker in jail with no defense if they had suggested it. It’s called the “Prudent Man rule”, Bill. Quite a few brokers who put their clients liquid assets in so called “money market preferreds” have found out what it’s like to be in the defendants box in a courtroom. Money market funds actually have a guarantee not to “break the buck”, lose any principal. Are you saying, Bill that Utilitiesa ren’t a can’t lose proposition?

    Rates are low, and that’s a fact. Before fixed income and utilities went in to a multi-deacade bear market, they yielded about what they do today. Utilities were at 15% yields when I was young in the 70’s before this fixed income bear is over, they’ll be there again. Really dumb advice, Bill. want a good investment, Bill? How about the asset you scorned in Barron’s a few years and many hundred dollars cheaper- Gold. It yields nothing, but will probably double your money in about as much time as it takes for your comment to make you look like an idiot.

  • Paul Sandison

    Re Sheran McCoy’s comment: This is not even old normal, it is reminiscent of something far more old and rigid, or perhaps he is writing from a hidden agenda. The quotas for different asset classes are really impracticable and need to be completely re-thought since they do not hold in every scenario. Witness 2007 to 2008 just to take one example. Besides which they cannot take into account geo-political or macro-economic events.

    Gold is interesting but not risk-free either, whatever the flash in the pan glitter of the last few years. If anyone does not know that they have not done their research properly.

    Mccoy gives the impression of being quite bitter and twisted. I suppose fanatically still believing in dangerous old rules like ‘buy and hold’ and then losing out or losing clients must be very upsetting. His apparent rigid and threatening authoritarian attitude seems to me to befit an era of the late thirties to sixties, not the late twenty hundreds.

    Of course there have to be arenas for free thinking and creativity and ‘thinking outside the box’. This forum is not a broker’s advice bureau. Gross is one of the most intelligent lateral thinkers around. Fortunately this site is blessed with the contributions of very many interesting and creative people, and Gross is one of them. Of course there are no limits to creativity. Even more like Gross would be greatly appreciated.

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