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PIMCO Managing Director Mark Kiesel on how investors can gain from the housing market recovery.
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The corporate debt market may seem a little bit like unfamiliar territory to some of you but here's why you as the investor should care.
Corporate debt these -- corporate bonds often -- key tell for the stock market case in point look at the performance of summit called the spy ET FS PY a proxy for the S&P 500.
And then you come parent.
Two LQ deed that ETF which is no blue line.
Obviously out performs.
That's for investment grade debt the corporate bonds practically -- the -- except that there's a little bit more strength right -- the strength continuing where you find some opportunities.
-- -- cell is Pimco managing director she is a five star.
-- -- -- From from -- quality sources it's it's we're really happy to have you here thank you so much for coming on.
Thank you and because we care so much about our viewers why we wanted to have you -- I you've had some great returns for your investment grade corporate bond fund -- Let's get right to it you know what do you feel that this is a trade that does continue to grow for people.
Well I think we've seen a lot of outperformance by equities and credit over the last several years ending now -- more of -- range bound environment where investors should expect to -- yields.
Not too much more price appreciation so we're looking at more of 345%.
Return for corporate bonds which is much lower than what we've seen over the last couple years.
Are you positive about the American economy on the I'm understating admit in essence you are absolutely thrilled about how America's doing in your bullish on America.
But I don't know -- saw the top of our show -- Driscoll the former fed insider.
It's telling us she thinks this is all an artificial recovery I presume -- take the opposite side of that trade.
Well we're looking at 2% real growth -- 4% nominal so were were still in -- below trend growth but there are some bright spots and we would point to housing.
And energy housing because we're recovering -- -- very low case and we'll get double digit growth rates.
In housing sector we -- neurotic parent how much how much will real house what housing contribute to real GDP there I mean what are you expecting.
So really there's a direct and in indirect component directly through residential investment spending we're looking at at least half a percent.
Contribution to growth this year in the -- direct effects would be higher home prices.
Potentially leading to a modest wealth effect in helping the consumer indirectly through higher consumer spending.
What do you say to the bears who say that this impressive move on behalf of housing over the past year -- Is really just a -- -- very low spongy bottom.
Well I think we're in the beginning stages of what will be a multi year recoveries so I I don't agree with that because.
Inventories are basically an eleven year lows for existing homes are at near twenty year lows.
For new homes and so basically were so depressed that you can grow for several years double digit growth rates.
Just to get back to a fifty year trend line.
I'm you're still looking at several years of growth ahead.
Well I would say -- right and I'm I'm happy to be on the side that believes you are very much in part right what trade which you make their would you do the actual homebuilders -- would you do.
That the sort of as we call them the derivative plays weird it involves the actual materials for this like a lumber player things like that.
Right we we like the derivative plays better we like companies like warehouses -- which is of a company that has six point.
Three million acres of timberlands.
That accompanied its 75% its earnings geared to a recovery in housing.
We like building materials companies like Masco.
Companies like USG.
Companies like world -- -- largest appliance manufacturers in the world so it's it's the derivative plays that we think make the most outspoken.
So we're leaving -- -- -- of people come look at them because again I remind people over the past three years you're your fund has had an 11% annualized rate has more than.
What are you -- now about ten point seven billion in this five star rated fund.
That's correct -- -- he's not gonna say it because he's modest but he came out number one -- out of 530.
Funds in his category so this why we're listening to him and here's the one year chart looks very healthy.
To avoid what scares you.
Well let's -- -- this right now is long maturity bonds are long the -- maturity treasuries we ultimately think the Fed is gonna win the war and we're gonna see.
Gradually higher inflation over time the economy is gradually improving.
And so what that means is that interest rates over time and this could take a year -- so wolf will likely had higher.
And we think inflation gradually there's going to be an upward bias so longer maturity bonds don't make much sense to us right now we prefer more intermediate part of the curve.
We like taking less interest rate risk and we like taking a little more credit -- -- again you have to be more selective now within the credit markets because.
A lot of the returns have been made in the and in the market.
Well there's there's a little bit of a warning their from -- cell and we've really appreciate it thank you for coming on.
Thank you he is Pimco managing director five star rated fund Michigan Wolverine I mean what's not to love -- thank you mark very much I'd ever.
