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Bill Gross – Stop Being “Scrooge McDucks” and Today’s Other Top Stories

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Bill Gross is out with his latest investment outlook, in which he has a message for corporate America. Gross used his monthly missive to call for the wealthiest Americans to support higher taxes rather than be “Scrooge McDucks.”

Gross says:

“Having benefited enormously via the leveraging of capital since the beginning of my career and having shared a decreasing percentage of my income thanks to Presidents Reagan and Bush 43 via lower government taxes, I now find my intellectual leanings shifting to the plight of labor. I often tell my wife Sue it’s probably a Kennedy-esque type of phenomenon. Having gotten rich at the expense of labor, the guilt sets in and I begin to feel sorry for the less well-off, writing very public Investment Outlooks that “dis” the success that provided me the soapbox in the first place.”

“If your immediate reaction is to nod up and down, then give yourself some points in this intellectual tête-à-tête. Still, I would ask the Scrooge McDucks of the world who so vehemently criticize what they consider to be counterproductive, even crippling taxation of the wealthy in the midst of historically high corporate profits and personal income, to consider this: Instead of approaching the tax reform argument from the standpoint of what an enormous percentage of the overall income taxes the top 1% pay, consider how much of the national income you’ve been privileged to make.”

The note comes on the back of last weeks tweet, when Gross called out corporate raider Carl Icahn for trying to persuade Apple to use its $147 billion cash pile to initiate a massive share repurchase plan.

https://twitter.com/PIMCO/status/393374905330597888

Gross says that any future growth is dependent on investment and investment in part depends on an equitable rebalancing of personal income taxes, capital gains and carried interest.

Investors in the U.S. and elsewhere must look for investment in the real economy, not share buy-back manoeuvres that artificially elevate stock prices.

You can read the full investment outlook here.

 

Todays Other Top Stories

 

Municipal Bonds

Learn Bonds: – Are you missing out on municipal bond market value? – The reason why people are suggesting that municipal securities may be an interesting investment these days is that they are yielding, on a before tax basis, at an significant spread over risk-free government securities.

Cate Long: – Puerto Rico’s bond market and its ratings: How bad it is? – Puerto Rico’s bonds are trading as though they have junk ratings. There has been a lot of resulting talk about the disconnect between Puerto Rico’s investment-grade ratings and the yields on its debt.

Reuters: – U.S. muni bond funds with Puerto Rico exposure down by $8.3 bln. – U.S. municipal bond funds with at least 5 percent exposure to Puerto Rico debt have experienced an $8.3 billion decline in their net assets in 2013, according to Lipper Inc data.

Bloomberg: – Tobacco-bond woes seen as Chicago seeks highest tax. – Mayor Rahm Emanuel’s plan to make Chicago cigarette taxes the nation’s highest is the latest blow to tobacco bonds, the weakest revenue-backed municipal debt of the past three months.

Before it’s news: – Municipal debt threatens U.S. economy. – The debt crisis that has taken down banks and even countries threatens more than 100 American municipalities this year. According to Meredith Whitney who works as a US research analyst, local and state debts are the biggest concerns to the US economy today. It is large enough to derail economic recovery. She said that, “There’s not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizable defaults – more. This will amount to hundreds of billions of dollars’ worth of defaults”.

ETF Trends: – Muni ETFs look more attractive as an income play. – Following the pullback in municipal bonds, muni exchange traded funds could regain traction among income-oriented investors as the Fed extends its accommodative policies. Muni bond ETFs are beginning to see their first inflows since May, reports Eric Balchunas for Bloomberg.

 

Education

KFVS: – What the national debt means to you. – The national debt level has been a significant subject of U.S. domestic policy controversy. Given the amount of fiscal stimulus that has been pumped into the U.S. economy over the past couple of years, it is easy to understand why many people are starting to pay close attention to this issue. Unfortunately, the manner in which the debt level is conveyed to the general public is usually very obscure. Couple this problem with the fact that many people do not understand how the national debt level affects their daily life, and you have a centerpiece for discussion.

 

Treasury Bonds

Euromoney: – U.S. government bonds: Short-term treasuries hit by shutdown chaos. – Concerns that payments on short-term Treasury bills would not be met caused investors to exit the market in early October: total outflows from money-market funds reached almost $54 billion in the first two weeks of the month. “The dislocation became so bad that one day the October 17 paper was yielding 50 basis points at moments. Last month yields were close to zero. Rates were extremely volatile,” says the head of trading at a U.S. bank.

WSJ: – U.S. Treasury considering smaller, more frequent auctions of TIPS. – The U.S. Treasury is considering smaller, more frequent auctions of government bonds that protect investors against rising consumer prices, known as inflation.

 

Investment Grade

The Economist: – The rating game. – Banks have been issuing instruments called hybrid bonds for a while, most recently as part of the effort to strengthen their balance-sheets after the financial crisis. Investors in such issues will be “bailed in” (their debt converted into equity) if the bank gets into trouble. But corporate hybrid bonds are different—indeed they are rather odd creatures. Their main appeal is that they are treated by rating agencies as part-bond, part-equity; most recent issues have been classified as half-and-half.

 

High Yield

Motley Fool: – The high cost of high-yield BDCs. – John Bogle revolutionized and democratized investing when he founded Vanguard and pioneered the low-cost index fund. Thanks to his firm, investors can buy broad market funds with microscopic fees measured in basis points. Unfortunately, there isn’t yet a Vanguard of the middle market. Those who want to invest in small, middle-market companies through business development companies will have to pay up!

Income Investing: – Forecasting junk-bond returns mostly luck – Fridson. – I wrote recently how junk bonds are on pace for a “coupon-clipping” year, in which year-end returns pretty closely match the market’s average yield to start the year. While that might seem commonplace, it’s actually incredibly rare in the junk-bond market, where short-term bouts of volatility trump long-term yield averages over most single calendar years.

Herald tribune: – What media are not telling us: Junk bonds’ danger is growing. – The media attention on the upcoming initial public offering of Twitter obscures a much bigger and possibly worrisome economic phenomenon: junk bonds.

Market Realist: – Why rallying rates are bullish for high-yield bond ETFs. – The calmer outlook for interest rates makes high yield credit funds a potentially attractive investment. Bond funds benefit from falling interest rates due to the inverse relationship between interest rates and bond prices. We can see this in the price performance of several bond funds over the last six months.

CNBC: – The journey from junk: How companies get their credit rating back. – Staging a comeback from having your corporate bonds slashed to “junk” status can be a long, difficult road.

 

Emerging Markets

IFAOnline: – Why emerging economies will (again) pass the resilience test. – Short duration emerging market bonds look attractive, as the threat of a rise in U.S. interest rates looms large, writes Damien Buchet, head of emerging market debt at AXA IM.

China Money Network: – Emerging market bonds will show long-term strength. – Global fixed income markets came under significant pressure between May and August as investors prepared for the reduction of quantitative easing by the U.S. Federal Reserve. While most sectors saw negative total returns, emerging markets (EM) debt was among the largest under-performers.

What Investment: – New JP Morgan emerging market fund to combine debt and equity mandates. – Investors’ desire to play the growth game in emerging markets whilst minimising volatility is the reason for the launch of a debt and equity fund by JP Morgan Asset Management, according to the company.

 

Bond Funds

Millionaire Corner: – Affluent investors retreat to the sidelines in October. – What a difference a month fraught with gridlock and government upheaval can make. When surveyed by Spectrem’s Millionaire Corner about how they would be investing in the coming month, Affluent investors said they would be retreating to the sidelines (45.75 points, a gain of 15 over the previous month, when those who responded that they would not be investing had dropped to the lowest level since March 2012).

Cam Hui: – A trading opportunity in bonds. – I believe that there may be a near-term trading opportunity to go long the bond market here. The momentum in high frequency economic releases have been tanking, as shown by this chart of the Citigroup U.S. Economic Surprise Index – and that should be conducive to lower bond yields (and therefore higher bond prices).

David Fabian: – 4 ETFs that have haunted investors all year. – With the stock market sitting near all-time highs, often times ETFs that have languished fly under the radar as investors focus on the euphoria of unrealized gains.

Kiplinger: – Convertible bonds can smooth volatility. – Conservative investors face a conundrum: Since markets have soared in recent years, it may be time to trim some stock exposure. But shifting to traditional bonds carries risks as rising rates threaten fixed-income holdings.

Fundaction: – Legg Mason’s Miller says no case for bonds. – Bill Miller chairman of Legg Mason, told the audience at FundForum USA there is almost no case for investing in bonds at present. With rates set to rise on the horizon, bond funds are set to lose value, but Miller also noted fixed-income is overvalued. Equities are a much better bet, he told the audience.

Forbes: – The Yellen spread. – With the Fed having exhausted most of its monetary tools, Janet Yellen will have limited options to postpone a day of reckoning, despite her best attempts.  When the music slows once again, the higher yielding, lower investment grade credit will suffer the biggest hit.  And the shrinking Yellen spread may resemble in hindsight a tightening noose around investors’ necks.

https://twitter.com/PIMCO/status/395946861569531904

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