The Bond King Throws In the Towel
For decades when you thought of the bond market the name Bill Gross came to mind. Last Monday one of the most famous fixed income traders of the 20th century decided it was time to step away from a game that he once ruled with an iron fist. During his heyday which covered over forty-five years, his success was unmatched.
Starting with a small amount of capital in the early 70’s, he viewed the fixed income market much like the stock market and played the game at an aggressive level. He was one of the first to realize that the 30-year bond rate which reached over 10% in the late 1970’s was not going to be around forever and placing those bonds in his portfolio guaranteed that his returns would at least approach that of the equity market.
As the years rolled on his firm, Pimco became the largest bond fund in the world and by 1997 it had ballooned to $293 billion dollars. His total holdings including other investments totaled more than $2 trillion. At one point, the Wall Street Journal reported that Mr. Gross was making in the neighborhood of $200 million a year.
Unfortunately, in 2013 and 2014 the fixed income markets were beginning to change. Mr. Gross had made a huge bet in 2011 using derivatives that proved to be the unwinding of both his company and in his personal relationships with the men who had helped him to be such a success. His personality could be described as prickly at best, and when a loud and personal problem with his chief lieutenant, Mr. El-Eriain ended with El-Eriain resigning, the company started to lose assets.
Finally, in 2014 he abruptly left Pimco to take a position with Janus Henderson Global Unconstrained Bond Fund. Pimco lost billions of dollars in withdrawals that followed Mr. Gross as he was able to convince clients to move about $2 billion to the new fund. However, he never was able to produce the desired results. In the end, the personality that had made him a fortune came back to haunt him as his returns were a paltry .95% over the last two years.
Bill Gross bowed out last week with the typical phrase, “It is time to spend more time with my family”. At 78 it is hard to see him ever coming back to run another Pimco, but no matter what your opinion of him as a person may be, he will always be remembered as one of the most innovative money managers of all time.
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the subject.
Question: Someone told me I can sell put credit spreads to hedge my portfolio. Is that right?
Answer: As the option markets have evolved over the past twenty-five years, the use of weekly options has gained acceptance. This allows investors the opportunity to use weekly put credit spreads in a combination with longer based serial puts to create a synthetic short position in the market that has very little or no time decay. This wasn’t possible even five years ago, but it is now a strategy that I teach to students that want to learn advanced trading techniques to protect their stock portfolio from downside risk.
The Wise Guy Report: The View from The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. This week let’s look at how the equities markets have performed since the start of 2019.
Equities Trending (Bullish)
The markets are very calm at the moment, except for the occasional unexpected earnings report that will send a stock either through the roof or crashing down. Volatility is now back to its twenty-year average and as long as we continue the climb off the December lows, there is no reason to suspect that it is going to suddenly take off again. At some point an event will occur and the market will suddenly lose ground, but that is inevitable as markets never change when least expected. But for now, the longs are certainly the strong hands and as long as they maintain that position the equity world should be safe and sound.
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Each Monday morning by 11:00 EST, the recommendations for each strategy are posted on the Optionomics’ web site. In addition, the updated results from the previous week are posted on the Optionomics’ Scoreboard. I also have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the trading floors and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to either the Traders or the Investor plans for only $49.95 each per month on a month to month basis with no contract or strings attached. If you subscribe to both it is only $79.95 per month, a 20% discount. I think you will agree that this is a super offer so give it a try. Go to www.optionomicsgroup.com and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert