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Tue, 25th April 2017

Anirudh Sethi Report

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Bill Gross falls in love with technical analysis

Bill Gross on what is in store for markets in 2017

Bill Gross takes on the big questions in his latest investment outlook. He says the election enthusiasm will flounder if it’s not followed by +3% growth.

“We shall see whether Republican/Trumpian orthodoxy can stimulate an economy that in some ways is at full capacity already. To do so would require a significant advance in investment spending which up until now has taken a backseat to corporate stock buybacks and merger/acquisition related uses of cash flow,” he wrote.

He notes the headwinds from high debt, automation and an aging workforce but concedes that Trump could stimulate short-term growth.

He believes that yields will continue to move higher in the year ahead and bases it as much on on technicals not fundamentals. He highlights the decades-long downtrend in yields that is suddenly under threat and that 2.60% is the key level.

His conclusion is that this trendline — and what it represents — is the most important level in the world:

“If 2.60% is broken on the upside – if yields move higher than 2.60% – a secular bear bond market has begun. Watch the 2.6% level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017.”

It’s not that Bill Gross has fallen in love with technical-only trading; it’s that a break of 2.60% (in his view) would confirm a change in inflation views in the market and a new paradigm. Still, it shows how technical analysis is used as a way to confirm a market move by one of the world’s greatest traders.

Read his full note here.

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