As we begin the 4th quarter of 2014, there are several news stories that we are watching intently. While some of these events may have the ability to shape the markets going forward, others might have a short term impact that could certainly effect portfolio balances, but likely will be short lived. Regardless of how the markets respond to these events, we are eager to see how they play out.
Bill Gross Leaves PIMCO
Pimco founder Bill Gross exited the company at the end of the 3rd quarter to join Janus Capital. Gross is considered by many to be the guru of the bond world. 70-year-old Gross was the founder and CEO of PIMCO and stayed with the firm over 40 years, a firm which now manages over $2 trillion globally. Speculators have said that Gross has exited Pimco due to the difficulty of finding yield in the bond market, and that the use of derivative products has changed the face of the game. Others say that Gross might see something coming down the road that others are not…
AIG Bailout Case
Maurice Greenberg, a former CEO of AIG, has successfully taken the United States Government to federal court, alleging that the Federal Reserve Bank of New York extorted AIG and that the terms of the 2008 bailout were unconstitutional. Greenberg and his company Starr International are seeking a $25 billion compensation package (Greenberg’s Starr International was the single largest shareholder of AIG at the time). While the case may not have any substantial results, we are expecting testimony from Ben Bernanke, Henry Paulson and Timothy Geithner, and we are certain that the markets will be listening to every word that they have to say.
The Goldman Sachs Tapes
In late September, a former Federal Reserve employee at the New York branch released 46 hours of recordings from her tenure at the Fed. The former employee alleges that the tapes show that the Fed was lenient on Goldman Sachs. The Fed was in charge of overseeing bank regulation, but clearly showed fear at what could happen if they were to upset the investment bank giant. As more details unfold, the public will be very interested to see what new information comes to light regarding the relationships between regulators and Wall Street.
BRIC Gold Reserves
As we discussed last week, the USD has seen unusual gains in the last 12 months, however that does not necessarily translate to the dollar being a strong currency. Japan has been devaluing their currency in an effort to remain a competitive exporter, and if you couple that fact with the hit that Russia’s Ruble has taken due to sanctions from the UN for their involvement in Ukraine, the USD appears comparatively stronger. Recently, reports have surfaced that both China and Russia have been increasing their bullion holdings. If any major economy were to flood the market with Dollars in exchange for gold, it could result in a substantial decline in the value of the USD. Only time will tell if Russia and/or China decide to engage in “economic warfare” with the West.
There certainly will be more stories that come out between now and the end of the year, but those are just a few of the major headlines that we are tracking. We encourage readers to stay up on current events, but remember, you cannot trade on news that is already a headline. By the time it hits your front door, the markets have already factored that information into prices. Be aware of what is happening in the world around you, but also look to the future, not to the past.