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Bill Gross: how to avoid being a loser in 2014

by Atholl Simpson on Jan 10, 2014 at 13:21

2014’s most important stat

With Fed policy likely to shape developed markets in 2014, Gross insists that rather than focus on US unemployment announcements, the Personal Consumption Expenditure (PCE) inflation rate is the most important statistic for investors to follow.

‘I consider it the critical monthly statistic for analyzing Fed policy in 2014. Why? Bernanke, Yellen and their merry band of Fed governors and regional presidents have told us so.'

'No policy rate hike until both unemployment and inflation thresholds have been breached and even then “they’re not thresholds,” they’re forks in the road that may or may not lead in a different direction.'

'If so, then 1-5 year bonds, combined with credit, volatility, curve roll down, and a dollop of currency should float a bond investor’s boat in 2014 and avoid breaking the buck in total return space.’

‘I’m not saying we’ve got a bull market here. But if PCE inflation stays below 2.0% and inflationary expectations don’t rise appreciably above 2.5%, then a 3-4% total return for 2014 is realistic.'

Gross top tips:

1) Total return bond portfolios should float above water in 2014.

2) No guarantees either!

3) Watch PCE inflation more than the unemployment rate.

4) Emphasize credit, volatility, currency and 1-5 year maturities.

5) Expect 3-4% total return for bonds.

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