Bill Gross Warns of Deflation and Today’s Other Top StoriesAuthor: Simon GLast Updated: November 3, 2014 Bill Gross warned investors on Monday that deflation remained a growing possibility despite aggressive monetary policies by central banks around the world.In his second investment outlook since joining Janus Capital Group Inc, Gross said history showed that economies experience periods of inflation and deflation, and both “are the enemies of stability and growth.”The roughly $7 trillion pumped into the financial system since the financial crisis by the world’s three biggest central banks has succeeded mostly in lifting prices of securities rather than the cost of goods and workers’ wages.“Prices go up, but not the right prices, one economy (the financial one) thrives, while the other economy (the real one) withers,” Gross said.Gross went on to say that much of the United States’ 21st-century economy had been based on financial engineering rather than investment and innovation.“The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue,” Gross said.“Stopping the printing press sounds like a great solution to the depreciation of our purchasing power,” he said, “but today’s printing is simply something that the global finance-based economy cannot live without.” Todays Other Top StoriesLearn BondsLearn Bonds: – REITs are an inferior form of real estate investing. – Real estate investment trusts have become quite popular in recent years, as the Fed’s easy-money policies have sent investors to all corners of the financial markets in search of yield. From my perspective, buying the common stock of publicly-traded REITs is an inferior form of real estate investing. Municipal BondsWSJ: – Returns on muni bonds soar. – Investors seeking higher returns are finding them in an unexpected place: the market for debt sold by states, cities and government-related entities.Bloomberg: – Martha’s Vineyard conservancy offering $35 million. – A conservation agency on Martha’s Vineyard, Massachusetts, is selling $35 million of debt to refinance bonds for renewable land-use projects including a campground for cyclists.ETF.com: – Swedroe: Understanding muni bond spreads. – The municipal bond market has almost $4 trillion in total debt outstanding. That compares with about $18 trillion in outstanding U.S. Treasury debt. Besides market size, municipal bonds differ from Treasurys in that they carry credit risk, are less liquid and are exempt from federal income tax. The size of the spread between Treasury bonds and municipal bonds is determined by the variation in one or more of those three differences.Bloomberg: – Muni bond proposals doubling to $44 billion shows debt appetite. – U.S. states and localities are asking voters to approve about $44 billion of bonds for schools, water systems, hospitals and roads, more than twice what they sought in 2010.WSJ: – Don’t chase yield in muni bonds. – (Subscription) Investors have been finding rich returns this year in the municipal debt sold by U.S. cities and states, but that doesn’t meant they should go chasing yield in the asset class, analysts and investors say.CNN Money: – Municipal bonds are on fire, buyer beware. – Municipal bonds, long a favorite of retirees looking for steady tax-free income, have roared back to life in 2014 after taking a beating last year as concerns grew about the nation’s cities running out of cash. But it’s not all fun in the sun.Reuters: – 13 top firms settle U.S. SEC charges over Puerto Rico junk bonds. – The units of 13 major Wall Street firms including JPMorgan and UBS will pay a range of penalties to settle regulatory charges alleging they improperly sold bonds from Puerto Rico’s landmark 2014 junk deal to retail investors. Bond MarketThink Advisor: – What QE’s end may (really) mean for bonds. – Investors and advisors alike may be surprised at recent fixed-income results.Bloomberg: – Bonds so distressed even panic-stricken junk outperforms them. – Issuers of emerging-market distressed debt missed out on a wider junk-bond recovery in October as woes afflicting the biggest losers proved more worrisome for investors than Ebola and global conflict.WSJ: – European Central Bank’s bond conundrum. – (Subscription) The Federal Reserve just closed the book on its government-bond purchases. The Bank of Japan on Friday vastly expanded its program. Now attention turns to the question of whether the European Central Bank will speed up its printing presses and start buying sovereign debt.The Guardian: – Why you should care about bonds even if everyone is talking about stocks. – The U.S. stock market gets all the attention, but the bond market is where the real fortunes are made. Chris Arnade, a former bond trader, describes the unsmiling, powerful markets that move companies and government. Treasury BondsCNBC: – U.S. bonds weigh PMI, Fed speeches. – Benchmark U.S. bonds traded higher on Monday, as market risk sentiment fell after disappointing European and Chinese economic data.WSJ: – U.S. Government bond yields rise to near four-week high. – Treasury bonds slipped Monday as an upbeat U.S. manufacturing report raised some concerns that the Federal Reserve may raise interest rates sooner than investors were expecting. Investment GradeWSJ: – Apple considers a new bond sale. – Apple Inc. is considering issuing its first-ever bonds denominated in a currency other than dollars, potentially building on a track record of blockbuster deals. High Yield BondsMarket Realist: – Why junk bond spreads react to market momentum. – Yields on corporate debt securities are based on a spread over Treasury securities of similar maturities. When the economy is trending up, this benefits the revenues and profits of firms. They have an improved ability to make the payments on borrowings. This decreases their risk relative to Treasuries, resulting in relative lower credit risks and spreads.Bloomberg: – New junk-bond derivatives are hot as traders get creative. – There’s been a surge in demand for a relatively new index of derivatives that aims to replicate the risk and return of high-yield bonds. As volatility soars to the most in more than a year, trading in a total-return swaps index reached a record $4 billion in September from almost nothing in May, according to data compiled by Morgan Stanley. Emerging MarketsCovering Companies: – Becoming bearish on emerging markets. – Emerging market bonds—debt issued by developing countries and economies—are seen as the best way to diversify a debt portfolio against smaller gains in United States Treasuries.WSJ: – Can emerging markets save the west? – (Subscription) The usual worry about capital flows is that hot money moving from developed economies to emerging markets suddenly reverses, prompting a crisis. But it is worth thinking about this the other way round amid two fundamental shifts: the retirement of the West’s baby boomers and the increasing clout of emerging markets.ETF Trends: – Dollar-denominated EM bond ETFs diminish currency risks. – Emerging market bond exchange traded fund investors should consider sticking to U.S. dollar-denominated sovereign debt as these types of debt securities would ride out currency risks associated with an appreciating greenback.Bloomberg: – JPMorgan joins Invesco seeing top emerging bonds in China, India. – Chinese and Indian bonds are likely to be the best performers in emerging markets as U.S. borrowing costs start to climb, say JPMorgan Asset Management and Invesco.FT: – Greek bond yield rises above 8% on election fears. – (Subscription) Back to the future, as Syriza scares the markets again. Greece’s 10-year bond yield has climbed back above the 8 per cent mark, as investors fret that the country will be forced to hold elections next February that are likely to produce a victory for the left-wing anti-austerity Syriza party. Investment StrategyWSJ: – Where do alternatives fit in a portfolio? – (Subscription) So-called liquid alternative funds have begun their march from the fringe to the mainstream, some investment professionals say. But the increase in popularity of holdings such as “long short” funds and “unconstrained” bond funds raises questions about where they fit in an investment portfolio.Morningstar: – Investors find fear everywhere. – One of Warren Buffett’s best-known pearls of wisdom is “be fearful when others are greedy, and be greedy when others are fearful.” It’s a quote intended to guide stock investors about when to buy and when to sell. But when it comes to investing, fear can take many forms, including the fear that high-flying assets will come crashing back to earth.Motley Fool: – The 5 worst things you can do with your money. – Making money isn’t easy, but losing it certainly is if you aren’t smart with your cash. There are dozens of potential investment opportunities for consumers to choose from, but the truth is that most don’t offer a rate of return that will allow you to retire the way the you want. With that said, let’s have a look at five of the worst things you can do with your money right now. Bond FundsMarketWatch: – There’s no need to wait to buy bonds. – The bond market has been on a roll. bonds are strong, and they’re bullish. And as we’ve been saying for most of the year, they’re likely headed higher.Investorplace: – What’s next for credit-heavy closed-end funds? – High-yield bonds are one of the worst performing bond sectors so far in 2014. But with so many closed-end funds (CEFs) relying on them to lever up cash flows from borrowed capital, what should investors expect between now and year end?TheStreet: – The Bill Gross effect: Are bond ETFs better than managed funds? – When “bond king” Bill Gross abruptly left Pimco last month, many fixed income investors — usually a risk averse and restrained lot — bolted in all directions. Billions of dollars poured out of the actively managed funds Gross created, much of it going into exchange-traded funds.ETF Trends: – October a banner month for bond ETFs. – The S&P 500 and the Dow Jones Industrial gained 3.8% and 3.5%, respectively, last month, but inflows to exchange traded funds indicate October 2014 can make a claim to being the month of the fixed income ETF.The Motley Fool: – Bill Gross’ parting gift to fund shareholders: Higher taxes? – The high-profile departure of Bill Gross from PIMCO to Janus Capital got plenty of headlines. Gross leaves behind a legacy of strong returns for longtime shareholders in funds like his flagship PIMCO Total Return Fund. But as the end of the year approaches, shareholders could see most unwelcome news from the fund in the form of a substantial distribution of taxable capital gains.WSJ: – Pimco upheaval a quandary for retirement plans. – (Subscription) For millions of employees who are putting aside money in their companies’ 401(k) plans, the recent management upheaval at the country’s biggest bond mutual fund has created a quandary.Zacks: – 5 Best-rated diversified bond mutual funds to buy now. – 5 top rated diversified bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all real estate funds. Doubleline total return bond fund had net inflow of $1.82 bln in october, bringing fund’s net inflow to $5.61 bln ytd #GrossEffect— Jennifer Ablan (@jennablan) November 3, 2014 Many people think Fed buys bonds from banks (hence no change in assets for the banks) but that’s not true, they’re bought from non-banks — David Schawel (@DavidSchawel) November 1, 2014“I’ve been investing in bonds long before anyone paid me to. I didn’t do it to be cool. I just liked it.” #BillGrossLincolnAd— Matt O’Brien (@ObsoleteDogma) November 3, 2014 Get the Best of the Bond Market delivered to your email each day. Sign-up here.