November 19, 2012

Bill Gross is the founder and co-chief investment officer at PIMCO, an investment fund company with over $1.7 trillion in assets under management. His PIMCO Total Return Fund, which is a bond fund, returned 8.37% annually since 1987, higher than the 7.25% return of the Barclays U.S. Aggregate Index bond fund (which is similar to the TSP’s F Fund). The PIMCO Total Return Fund has almost $300 billion in assets under management, which almost matches the size of total TSP holdings.

Gross tweeted on Friday that “Stocks are down because taxes on Capital are going up. HY Bond liquidity is declining.”

Gross’s second comment is noteworthy too. “HY” stands for “High Yield,” and he notes that “High Yield Bond liquidity is declining.” That means essentially that investors are getting nervous, and HY bond yields might go up as a result, and this in turn means lower returns (or losses) in the short term. Investors are nervous across the board because of looming higher taxes and the fiscal cliff. Hence, markets – including the TSP stock funds – are going down.

Interestingly, Gross has lightened up on his longer-term Treasury holdings since the summer, saying that he is worried that the Fed’s monetary stimulus could generate inflation risks in the longer term. Higher inflation would negatively impact the F Fund for TSP investors particularly in the short term, but not the G Fund, which is a special stable-value fund.

Gross also tweeted over the past week that “Making money w/money increasingly difficult w/near zero yields,” and later that, “When nearly all asset mkts bubble, ‘default’ choice becomes cash.” This is not a call to “sell” everything per se, but certainly a call to be careful ahead of the fiscal cliff and higher taxes. I’ve been in a holding pattern, implementing Strategy III of TSP Investing Strategies until the time has come to implement Strategy IV should the stock funds drop further.

For the record, I do not have any investments or financial dealings with PIMCO.

Related topics: long-term-investing