PIMCO's Bill Gross says "no more QE, no more bull market", but is he right?
The Bond King has a stark warning for stock investors: no QE, no bull market.
That’s what Bill Gross, co-founder of the $262 billion bond colossus PIMCO, tweeted out today. And, it’s gotten Wall Street nervous.
Gross: 3 to 4 percent credit growth can’t produce much more than 3-4 percent increases in asset prices. No more QE's? No more bull markets.
— PIMCO (@PIMCO) August 21, 2013
“QE”, of course, refers to the Federal Reserve Bank’s policy of “quantitative easing”. For the past several years, the Fed has been buying US Treasury and mortgage bonds to add dollars into the financial system. Buying all these bonds has helped bring yields on the US 10-Year Treasury note to below 2% just a few months ago.
Currently, the Fed buys $85 billion worth of fixed income instruments every month. But since May, policymakers have hinted that the Fed may taper QE as early as September. Market nervousness that the Fed won’t be as large a buyer led to a selloff in bonds, causing yields in the 10-year Treasury bond to jump to its current levels of around 2.8%.
So, is Bill Gross right that bull markets will go away with a tapering of QE?
Talking Numbers asks two experts to tackle this question. John Stephenson, portfolio manager at First Asset Investment Management, looks at the market’s fundamentals. He says corporate earnings and the GDP have a lot more to do with where the market goes next. On the charts is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson. He says there are technical indicators pointing to where the markets will most likely head next.
To hear Stephenson and Ross analyze what’s next for the markets and whether Bill Gross is right about QE tapering, watch the video above.