Bill Gross, the one-time bond king who co-founded fixed-income giant Pimco, is now comparing his long-favored asset class to garbage in a CNBC report.

King Bill believes bond yields are poised to shoot up as the Federal Reserve begins tapering the massive monetary stimulus that supported the economy throughout the pandemic. Bond prices fall as rates rise, eroding the asset’s value so significantly that it would be as useless as cash, Gross said.


“Cash has been trash for a long time but there are now new contenders for the investment garbage can,” Gross wrote in a blog posted on his website Thursday. ‘Intermediate to long-term bond funds are in that trash receptacle for sure, but will stocks follow? Earnings growth had better be double-digit-plus or else they could join the garbage truck’.”
Bill Gross, Co-Founder PIMCO

 

You’ve got a purchasing power problem

Gross predicted the 10-year Treasury yield will trade around 2% for the next 12 months, which will equate to a 4% to 5% price loss and a negative total return of 2.5% to 3%. Real returns in the red and a 5%+, increasingly less-than-transitory, inflation rate means you’ve got a purchasing power problem.

 

A market dislocation exists that can be exploited

When money moves heavily into US Treasury Instruments in what the financial press monikers as a “Flight to Safety,” it usually signals a “Risk-Off” trade to preserve capital until the uncertainty and associated volatility (beta) of riskier asset classes become more well-defined and money managers feel a greater degree of comfort to go back into “Risk-On” positions in search of higher, risk-adjusted returns (alpha). As a reference point for fixed-income instrument risk-adjustment analysis, the 10-Year Treasury Bond is considered the “Risk Free” rate as Treasuries are backed by the “Full Faith and Credit of the US Treasury.”

A market dislocation exists that can be exploited to defend against the adverse effects of these pandemic paradigm shifts, particularly as it applies risk management. It’s called the Senior Life Settlement Market.

The Senior Life Settlements Asset Class is an alternative asset class that is agnostic and apathetic to almost everything that makes other market-based investment mechanisms twitch every time Jimmy Chill (CNBC’s Jim Cramer) hits the “House of Pain” button on his control console.

Senior Life Settlements remove the pain points of market correlation, position overlap, market timing, yield curves, order of returns, etc. out of the equation and relegate the primary risk of time to policy/portfolio maturity and illiquidity as the only remaining elements to the risk of owning the life settlement asset class.

A Senior Life Settlement is a life insurance asset-backed security that derives its value or yield from the contractual obligation of a highly rated US Legal Reserve Life Insurance Carrier. The spread between the acquisition cost and the face amount of a life insurance policy is the store of value for the investor.

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