{"id":742,"date":"2014-09-26T21:53:40","date_gmt":"2014-09-26T21:53:40","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=742"},"modified":"2014-09-26T21:53:40","modified_gmt":"2014-09-26T21:53:40","slug":"gross-out-end-of-an-era","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=742","title":{"rendered":"Gross-Out: End of an Era"},"content":{"rendered":"

The news flash crossed the wires at 8.29 AM. CNBC\u2019s Becky Quick was astounded. Bloomberg\u2019s Tom Keene was stunned. They had to double-check that the William H. Gross joining Janus Funds was indeed THE<\/strong> William H. Gross, bond king, whom they had interviewed many times. The answer was YES<\/strong>\u2014the Two Billion Dollar Man was leaving Pimco, the firm he founded.<\/p>\n

Why should we care? That\u2019s a real good question, unless you happen to own shares in Janus or Allianz, owner of Pimco.<\/p>\n

Here\u2019s the answer. This Gross-Out signals the end of an era, an era of ever lower bond yields and higher bond prices.<\/strong> Yields have been dropping for a long, long, long, long time. Back in the early 1990s I helped write a bullish report on the bond market (the theme and title were conceived by my co-author, Edward Kerschner). The report\u2019s daring title was \u201cSix in \u201996,\u201d and it was followed in due course by \u201cFive at the Turn\u201d (of the century) and then \u201cFours Before Long.\u201d We never thought to write a report called \u201cOne and Not Yet Done,\u201d which is now appropriate for the 10-year German Bund.<\/p>\n

Anyhow, the era of ever-rising bond prices, which Mr. Gross brilliantly rode to fortune and fame, is very probably over, at least in the U.S. QE bond buying by the Fed is about to end. The U.S. economy is finally strengthening. Unemployment is fairly low. The Fed will start to tighten next year. Bond prices will stop rising. I admit they may not decline all that much, what with inflation restrained by the strong dollar and foreign bond yields depressed by deflationary pressures in Europe, China and Emerging Markets. So maybe bond yields gradually drift higher from 2.5% to 3.5% over the next year or two. That is still a difficult bond market in which to produce attractive returns for mutual fund investors.<\/p>\n

A Parade of Gurus<\/strong><\/p>\n

Historical perspective is useful. Bill Gross is just the latest celebrity fund manager whose brilliant career coincided with a specific phase of the financial markets.<\/p>\n