The Pacific Investment Management Company (PIMCO), which was co-founded by chief investment officer and legendary bond investor Bill Gross, thinks China and Singapore are in good shape to weather the global financial storm. Reuters’ Chikafumi Hodo and Masayuki Kitano wrote this morning:

Asian markets face uncertainty in the global crisis and countries such as China and Singapore with the firepower to fight back will come out on top, the managing director of PIMCO’s Asia-Pacific operations said on Monday.

PIMCO, the world’s biggest bond fund manager, said it prefers countries such as China and Singapore that can pull on various levers — whether they be monetary, policy or fiscal — to counteract a potential global recession.

Countries with lower credit ratings or lacking the flexibility will find it a tougher road, Douglas Hodge, PIMCO’s Tokyo-based chief said in an interview for the Reuters Global Finance Summit.

“We’ve been through a financial hurricane and we are not in the eye of the storm,” he said when asked about the situation in Asia. “We are not in the storm, but we have gotten wet. So it’s still raining.”

Singapore Skyline

According to Hodge, India is not as well-positioned as China or Singapore. From the Reuters piece:

Pacific Investment Management Co, or PIMCO, said it did not favor India, given the country’s large current account and fiscal deficits, as well as its more insular economy.

“The countries that we prefer have the maximum discretion to use policy to help offset the dislocation in the private sector,” said Hodge. “The countries that we don’t like are the ones with the least flexibility.”

The head of PIMCO’s Asia-Pacific operations also added that they were “modestly bullish” on Japanese government bonds. The massive bond fund had $64 billion in assets under management in the Asia-Pacific region as of the end of September, representing about 8 percent of its global total of $790.3 billion, according to the Reuters reporters.

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“PIMCO favors China, Singapore”
Chikafumi Hodo, Masayuki Kitano
Reuters, November 10, 2008

Legendary investor Jeremy Grantham, who has been getting a lot of attention from the financial media lately for predicting this latest economic crisis, recently released his “Quarterly Letter” as Chairman of privately-held global investment firm GMO. When he wrote his newsletter, the S& P 500 Index was at 900. Today, it finished the week at 931. Notable excerpts included the following:

On October 10th we can say that, with the S&P at 900, stocks are cheap in the U.S. and cheaper still overseas. We will therefore be steady buyers at these prices. Not necessarily rapid buyers, in fact probably not, but steady buyers. But we have no illusions. Timing is difficult and is apparently not usually our skill set, although we got desperately and atypically lucky moving rapidly to underweight in emerging equities three months ago. That aside, we play the numbers. And we recognize the real possibilities of severe and typical overruns. We also recognize that the current crisis comes with possibly unique dangers of a global meltdown. We recognize, in short, that we are very probably buying too soon. Caveat emptor…

Rounds I and II – the asset bubbles breaking and the credit crisis – will soon be mostly behind us, but the effect on the real world of economic output lies, unfortunately for all of us, almost entirely ahead. Employing our usual historically loaded armchair technique, we have been writing for several quarters that global economic weakness will be substantially worse and will last substantially longer than the official forecasts. We maintain that view even though official forecasts have dropped considerably. The global economy is likely to show the scars of this crisis for several years. In particular, the illusion of wealth created by over-inflated asset prices has been dramatically reduced and, though most of this effect is behind us, a substantial part of the housing decline in some European countries and the U.S. is still to occur…

This reversal of the illusory wealth effect added to deleveraging will be felt worldwide, but especially in the so-called Anglo-Saxon countries, and will be a permanently depressing feature of the next decade or so compared with the last decade. It is indeed the end of an era.

Grantham, who has advised such clients as outgoing U.S. Vice President Dick Cheney and former U.S. presidential candidate John Kerry, shared his investment outlook in the section entitled “Provisional Recommendations.” He wrote:

At under 1000 on the S&P 500, U.S. stocks are very reasonable buys for brave value managers willing to be early. The same applies to EAFE and emerging equities at October 10th prices, but even more so. History warns, though, that new lows are more likely than not. Fixed income has wide areas of very attractive, aberrant pricing. The dollar and the yen look okay for now, but the pound does not. Don’t worry at all about inflation. We can all save up our worries there for a couple of years from now and then really worry! Commodities may have big rallies, but the fundamentals of the next 18 months should wear them down to new two-year lows. As for us in asset allocation, we have made our choice: hesitant and careful buying at these prices and lower. Good luck with your decisions.

You can access the entire piece from the GMO website here.

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“Reaping the Whirlwind”
Jeremy Grantham
GMO, October 2008

Recently, legendary bond investor and PIMCO managing director Bill Gross released his “Investment Outlook” for November 2008. Notable excerpts included the following:

The Half-Century Party

The era now coming to an end is not a one-generational bull market that was born out of the ashes of double-digit inflation, and the end of governmental strangulation of private initiative in the early 1980s. It was much more, and much longer in duration. The past era can best be described as a more than half-century build up in credit extension and levered finance.

Hubris

What is important, though, is that at some point early in the 21st century, things began to go terribly wrong with this miracle of modern finance. It was spreading substantial benefits via diversification and indeed the productive powers of lending upon which capitalism depends. But it had assumed an arrogance – if a secular phenomenon can be personified – that nothing could go wrong. It was promoting not just smooth sailing – a moderation – but a “great moderation.” Unstoppable. Except, of course, for that homeowner in Modesto, California, who bought a marked-up home for $500,000 with no money down and a 2% teaser interest rate. Even the pinnacle of levered finance could not support that fantasy and so, as yields inevitably rose and the defaults began in 2006, our great moderation was exposed for what it was – a naked swimmer at high tide.

PIMCO’s Investment Strategy

There will come a time, however, perhaps over the next few weeks or months, when deleveraging of the private sector is met by the leveraging up of the government sectors: the TARP, CPFF, and MMIFF will inject over a trillion dollars of liquidity into the system over a short period of time. At that point, our nuclear atom will begin to stabilize and it should be safer to move a little distance back out toward the perimeter where yields and potential returns are very attractive. PIMCO would focus on the following:

1. A continued above-average allocation to agency mortgage-backed securities – now yielding close to 6%.
2. An overweight position in bank capital – bonds and preferred stock in companies where the Treasury has an equity stake. With Uncle Sam as your partner, default seems remote.
3. A focus on the frontend of the yield curve. The Fed will stay low for an extended period of time while the inevitable inflationary pressures of government bailouts lay further out on the yield curve.

You can access the entire piece from the PIMCO website here.

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“Investment Outlook”
Bill Gross
PIMCO, November 2008

FREE VIDEO: This stock is getting ready to fly.

Legendary investor Jim Rogers was in the Netherlands last week and stopped by ABN Amro Netherlands. RTL Z (Netherlands) was at ABN headquarters on Friday and got the chance to interview the CEO of Rogers Holdings. Notable excerpts from the interview included:

Obama or McCain?

Neither. I’ll vote the protest vote because neither one of them has a clue.

Inflation or Deflation (Near Future)?

We’re going to have serious inflation. Because governments around the world are printing money. Whenever you’ve had lots of money printed over the past few hundred years it’s always led to higher prices, it’s always led to inflation. I mean, these are simple things. Right now, everything is going down because there’s forced liquidation of everything. But in the end it’s going to be an inflationary nightmare.

Brazil or India?

Brazil. Brazil has got a lot of natural resources and is a reasonably well-run country. At the moment, India doesn’t have many resources, and even the resources they have, they manage badly. No, I would never want to put my money in a badly-managed country or company.

Mexico or Germany?

Germany… Germany’s a much better place, of those two, I’d rather be in Germany.

Iceland or United States?

I’m shorting the United States’ government bonds… I’m selling short the long-term government bond in the U.S. I’m not doing anything in Iceland.

Dollar or Yen?

Yen… I would not buy the dollar now, I’d buy the Yen.

Gold or Gold Mines?

Thousands, tens of thousands of gold mines have gone bankrupt over the past 150 years. Gold is still gold. I’d rather own the gold than the mines. I mean, if I happen to know the mine, and I knew the guy was a genius, then maybe I would buy the mine stock. But no, definitely buy the gold.

Commodities

Commodities are going to be in a bull market for another decade or two. Whether oil is selling at $45, or $145, it doesn’t really matter to me— today. Ask me in 10 years— it will matter… I don’t have any trouble sleeping, because I know we’re in a long-term bull market.

The segment runs a little over 14 minutes, but is definitely worth viewing.

RTL Interview Link

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Jim Rogers Interview
RTL (Netherlands), October 31, 2008

Legendary bond investor and managing director of the PIMCO family of bond funds Bill Gross made an appearance on CNBC yesterday and talked about what investors should be considering these days. According to the CNBC website:

Gross also said bond investors want to buy what the government is buying.

“The Treasury is buying agency mortgages in the secondary market as well as bank capital preferred stocks via the TARP,” he said.

The government may extend the reach to subprime mortgages and insurance and auto companies, Gross said.

Companies like Ford Motor and General Motors, for instance, are attractive, he said.

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“Pimco’s Gross: Rates To Hold Steady Or Decline More”
CNBC, October 29, 2008

PIMCO’s Bill Gross is a big fan of bonds for U.S. commercial banks that are due to receive money from the federal government. Dan Weil from Internet news site Newsmax.com wrote yesterday:

What to do when the government invests in banks throughout the land? Join them, says bond fund manager Bill Gross.

Bonds for commercial banks included in the Treasury’s equity-purchase program are particularly attractive, says Gross, chief investment officer of bond giant Pimco.

KeyCorp, Ohio’s third-largest bank, and Regions Financial, Alabama’s biggest bank, are members of that club. KeyCorp will sell $2.5 billion of stock to the Treasury, while Regions will provide a $3.5 billion equity position.

After doling out $125 billion to nine of the nation’s biggest banks, the Treasury is now sending $34 billion more to 15 regional banks.

“We like the ones that are submitting applications,” Gross told Bloomberg TV. “The government is investing 10 to 15 percent of the banks’ total capital themselves into the company. So why not be a partner with the government at a higher yield than the government is giving?”

“It’s a slam dunk,” Gross says.

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“Gross: Bank Bonds a Screaming Buy”
Dan Weil
Newsmax, October 28, 2008

Earlier today, Jim Rogers talked to Bloomberg’s Nina de Roy in London about the outlook for global markets and his investment strategy for agriculture, gold, currencies and U.S. treasuries.

Investment Strategy

If you want to know what I’m doing now, I’ve been buying the yen, as I’ve talked about on Bloomberg before. I’ve been buying commodities, especially agriculture. I’m selling short the United States long-bond, the long-term government bond. Buying some Swiss francs. A little bit of China. A few Chinese shares, a few Taiwan shares. And I’m watching. It’s an interesting time.

Commodities Outlook

Historically, what comes out of periods like this, and lead the new market, will be the things where the fundamentals are unimpaired. The only things where the fundamentals are unimpaired right now are commodities. I mean, fundamentals for commodities are being improved by all of this… So if you want to make money, you buy the things where the fundamentals are still good and positive, and that’s how you make money…

The world’s certainly in recession, and there is a cyclical slowdown. But the secular supply is being damaged even more. Your not going to be able to get any— farmers cannot get loans to expand. Nobody’s going to give you money to open a zinc mine in the next decade. So when we come out of this cyclical decline, you’re going to have even less supply, and the bull market in commodities is going to resume, and that will be the best place to have money.

Gold

I have gold. If gold goes down, I’ll buy more. If it goes up, I’ll buy more. Gold is in a bull market, which has got years to go. But I expect to make more money in agriculture, Nina, than I do in gold. But I own it. Bought some yesterday, as a matter of fact.

You can view the 12 minute 44 second Bloomberg interview here.

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Jim Rogers Interview
Bloomberg, October 24, 2008

PIMCO’s Bill Gross, who is also known as the “King of Bonds,” continued to acquire high-quality mortgage-backed securities through September, while dumping U.S. government debt. The Wall Street Journal’s Min Zeng wrote yesterday:

High-quality mortgage-backed securities remain the investment of choice in the eyes of bond-fund giant Pacific Investment Management Co.

Pimco Total Return Fund, the world’s largest bond-focused mutual fund, raised its holdings of mortgage-backed securities to 79% by the end of September, a level not seen since at least June 2000, from 69% a month earlier, according to data from the company’s Web site.

In contrast, Pimco continued to snub U.S. government debt, reducing its holdings for the ninth straight month, even though Treasurys have benefited over the past couple of months from massive safe-haven buying.

Pimco spokesman Mark Porterfield said Monday the company doesn’t comment on its bond holdings. Bill Gross, Pimco’s co-chief investment officer and manager of the $129.59 billion Total Return Fund, didn’t immediately respond to an email seeking comments on the holdings.

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“Pimco Bets on Mortgage-Backed Debt”
Min Zeng
Wall Street Journal, October 21, 2008

Jim Rogers appeared on CNBC earlier today and emphasized that the credit crunch the global financial system is experiencing will contribute to the allure of commodities. From the CNBC website:

The fundamentals for commodities were not affected by government policies that are propagating inflation, Jim Rogers, CEO of Rogers Holdings, told CNBC Wednesday.

“I bought more agriculture this week,” Rogers told “Squawk Box Europe.” “What’s happening is that there will be less supply of everything if we ever come out of (the credit crunch). Nobody can get a loan for a zinc mine or, long term, increase crop production.”

If history is any guide, things to buy are things that are doing fine right now like water treatment companies in Asia or agriculture, Rogers added.

Rogers, who recently moved his young family to Singapore to take advantage of Asia’s bright prospects, also predicted that the Federal Reserve will be lowering interest rates. From CNBC:

Rogers also said that interest-rate cuts are coming.

“I know we are going to get aggressive rate cuts everywhere, that’s why I’m long short-term government bonds in the U.S., but shorting long-term government bonds because it’s not going to help, it’s going to add to inflation,” he said.

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“In Times of ‘Zombie Banks,’ Buy Commodities: Jim Rogers”
CNBC, October 22, 2008

Legendary investor Marc Faber told Bloomberg Television viewers yesterday where he’s putting his money these days. Bloomberg’s Eric Martin and Rhonda Schaffler wrote Monday:

Faber said he is holding gold, cash and short-term bonds because inflation will increase as the U.S. government lowers interest rates to stave off an economic slowdown. Gold climbed 5.8 percent from Sept. 11 through yesterday and yields on three-month Treasury bills fell 51 percent over the period.

“The governments in this world have no other option but to print money. That will lead down the road to inflation,” Faber said. “You don’t need to be an economist graduated from Harvard to know we’re already in a recession. They will just put white paint on a crumbling building.”

Faber, the Gloom, Boom & Doom report publisher, said stocks make up 7 or 8 percent of his holdings, with cash, bonds and gold, his biggest position, accounting for the rest.

Martin and Schaffler also reported on Dr. Faber’s stock picks. They wrote:

Faber recommended buying stocks in Singapore because they are inexpensive relative to company assets. He said this is true particularly for the nation’s real-estate investment trusts and banks.

Singapore’s Straits Times Index has fallen 49 percent from a record one year ago.

“You should just buy the whole of Singapore,” Faber said. He also recommended stocks in Turkey.

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“Faber Says Stocks May Rally, Won’t Reach Records (Update1)”
Eric Martin, Rhonda Schaffler
Bloomberg, October 20, 2008