What the End of the Bond Bull Market Means for Investors

It’s been a while since I read Bill Gross’ monthly
Investment Outlook.

If you don’t recall Bill Gross is one of the most
influential fund managers in the world. As the founder and CEO of PIMCO,
he oversees around $1 trillion in assets. Ad he personally runs the PIMCO
Total Return Fund, with assets above $500 billion.

Gross is a bond guy. And he’s done quite well over the
years, posting consistent annual returns in the 8%-10% range.

Bill Gross: Government Debt is a Ponzi Scheme

Today Bill Gross told reporters at CNBC that massive influxes of capital from
the Federal Reserve “is in fact inflationary, and, if truth be told, somewhat
of a Ponzi scheme.”

Over the past seven months, Mr. Gross has slowly dumped hundreds of millions
of dollars worth of U.S. Treasury bonds in preparation for what he believes
is the end of the bull run in bonds.

Bernanke’s Burden

I don’t want to temp fate. I’m not trying to jinx it. I
understand that stocks (and gold, and oil) are rallying on the Fed’s promise
and the falling dollar.

But this rally just doesn’t want to reverse.

Yesterday was wide open for the bears to take prices lower.
Financial stocks, usually thought of as stock market leaders, were absolutely
crushed. It was a rout. Bank of America (NYSE:BAC) got creamed for 5%. Citi
(NYSE:C) lost 4.5%. Even JP Morgan (NYSE:JPM), after a good earnings report,
was down as much as 4% at its lows of the day.

Why a Trade War with China is Bad News

We’re in the home stretch of 2010. The favorite, Weak
Recovery, is ahead by a nose. QE2 and Falling Dollar are right behind. Toxic
Asset and Solid Earnings have been unable to mount a charge.

But two horses — Man ‘o Trade War and Europe’s Problem —
are moving on the outside and could decide the race.

There are so many conflicting catalysts, sometimes it seems
as though you have to pick your horse, place your bet and see what
happens.

Two Trends to Watch

The weak economic recovery has created a very volatile
stock market. Wide swings in investor sentiment give us “it’s getting
better” rallies and “double-dip recession” sell-offs.

We’ve enjoyed one of those “it’s getting better” rallies
that’s boosted the S&P 500 85 points, or 8%, from 1,040 on August 31
to a 1,125 close yesterday. The move was supported by improving
employment data, better than expected retail sales and spending numbers
and as surprise jump in manufacturing activity.

But these days, investors don’t maintain their
convictions, or stock positions, for long. And economic data is having a
hard time building on its momentum.

What Will Obama Say?

Yesterday, buyers mustered the strength to build on
Wednesday’s strong rally. In fact, the bulls pushed the S&P 500 above a
key resistance point at 1,085.

I’ve talked at length about how pessimism was at an extreme
and a bounce for stocks looked likely. Recent economic data has been good
enough to support the notion of an economic recovery, and while not setting
records, it is at least strong enough to avoid a double-dip of
recession.

Most of the recent data was in line with expectations:
factory orders were up 0.1%, productivity was down 1.8% and labor costs were
up 1.1%. However, Wednesday’s strong new home sales for July (up 5.2% when a
loss was expected) was probably the single most important data point.

Investor Sentiment is Awful

The stock market failed to build on the rally from Friday.
The S&P 500 fell below support at 1,050 yesterday.

Right now, sentiment is just awful across the board. And
we’re heading into what’s traditionally the worst two months of the year for
stocks: September and October.

Volume in the stock market has been extremely
light. This suggests that individual investors are not buying stocks. And we
can see that in mutual fund flows. In July, bond funds attracted $25 billion
dollars. And investors pulled $12 billion out of
U.S. equity funds.

9% from Top Dividend Stocks

First, I must start with an apology. Due to a crashed email
server, you did not receive your Daily Profit yesterday.
Obviously, the server is up and running today, but still my apologies for
yesterday’s failure. In the future, you can always check the Wyatt Research
website for the Daily Profit. Now on to today’s
business…

Stocks were unable to hold onto the enthusiasm from better
than expected new jobless claims yesterday. This probably didn’t come as much
of a surprise. After all, the jobless claims number was still poor, and with
the 2Q
GDP revision and Fed statement today, there was
still plenty of uncertainty in the air.

TradeMaster Daily Stock Alerts trading strategist Jason Cimpl expressed his
disappointment in today’s morning advisory to his members thusly:

What Will the Fed Do?

What’s this? New unemployment claims actually fell for a
week? Amazing…

Of course, a drop from 500,000 to 473,000 new claims for
unemployment benefits isn’t a very big move. And people are still losing jobs
at an alarming rate for an economy that’s supposedly in recovery. But at this
point, any improvement is a good thing. And we can only hope this is the
start of a trend toward better employment data.

If we look at unemployment on the state level, we see that
much of the unemployment is concentrated.
Nevada
has an unemployment rate of 14.3%. Michigan
is at 13.1% and California is at
12.3%.
Florida comes in at 11.5%.