Bill Gross – March 2013 Investment Outlook: Rational Temperance
PIMCO’s
dear friend and former counselor Alan Greenspan coined this now famous phrase
in the midst of what turned out to be a fairly rationally priced stock market
in late 1996. While the market was indeed moving in the direction of “dot-com”
fever three to four years later, the Dow Jones Industrial Average at the time
was a relatively anorexic 6,000, and the trailing P/E ratio was only 12x. For a
central bank that was then more concerned about economic growth and inflation
as opposed to stock prices, risk spreads, and artificially suppressed interest
rates, the Chairman’s query made global headlines, became a book title for
Professor Robert Shiller and a strategic beacon for portfolio managers
thereafter. Having experienced two and perhaps three bouts of significant
market irrationality since Greenspan’s speech (the 1998 Asian Crisis, 2000
Dot-Coms, and of course 2007’s subprime euphoria), investors these days have
their ears pressed to the ground and eyes glued to the tape for any sign of
renewed irrationality. If the game is now musical chairs as opposed to Chuck
Prince’s marathon dancing, it pays to be close to a chair, even as the “can’t
miss” euphoria mesmerizes 2013 asset managers worldwide.
