This page has been archived and commenting is disabled.

Bill Gross Asks The $64,000 Question: "Who Will Buy Treasuries When The Fed Doesn’t?" His Answer: "I Don't Know"; Gross Is Getting Out Of Risk

Tyler Durden's picture


After serving as the inspiration for the Chairsatan's latest appellation with his February missive, Bill Gross now goes for the jugular with the $64,000 question: with "nearly 70% of the annualized issuance since the beginning of QE II
has been purchased by the Fed, with the balance absorbed by those old
standbys – the Chinese, Japanese and other reserve surplus sovereigns.
Basically, the recent game plan is as simple as the Ohio State Buckeyes’
“three yards and a cloud of dust” in the 1960s. When applied to the
Treasury market it translates to this: The Treasury issues bonds and the
Fed buys them. What could be simpler, and who’s to worry? This Sammy
Scheme as I’ve described it in recent Outlooks is as foolproof
as Ponzi and Madoff until… until… well, until it isn’t. Because like at
the end of a typical chain letter, the legitimate corollary question is –
Who will buy Treasuries when the Fed doesn’t?" Bingo, we have a winner. This is precisely the issue that Zero Hedge has been exposing over the past 6 months, and is the reason why the Fed is now locked in a QEasing corner from which there is no exit. To his credit, Gross attempts to provide an answer: "Someone
will buy them, and we at PIMCO may even be among them. The question
really is at what yield and what are the price repercussions if the
adjustments are significant... What I
would point out is that Treasury yields are perhaps 150 basis points or
1½% too low when viewed on a historical context and when compared with
expected nominal GDP growth of 5%."
And the stunner: "Bond yields and stock prices are
resting on an artificial foundation of QE II credit that may or may not
lead to a successful private market handoff and stability in currency
and financial markets
. 15% gratuities may lie ahead, but more than
likely there is a negative two-bit or even eight-bit tip lying on the
investment table. Like I did 45 years ago, PIMCO’s not sticking around
to see the waitress’s reaction." Translation: Pimco just issued a "sell" rating on everything.

From Bill Gross March Outlook.

Two-Bits, Four-Bits, Six-Bits, a Dollar

  • A successful handoff from public to private credit creation has yet
    to be accomplished, and it is that handoff that ultimately will
    determine the outlook for real growth and stability.
  • Because quantitative easing has affected all risk spreads, the
    withdrawal of nearly $1.5 trillion in annualized check writing may have
    dramatic consequences.
  • Who will buy Treasuries when the Fed doesn’t? The question really is
    at what yield, and what are the price repercussions if the adjustments
    are significant.

Gross family legend is rather full of Paul Bunyan tall tales passed
down over the years but none perhaps more self- revealing than “The Day
When I Gave the Waitress a Negative Tip.” Admittedly I was young and
full of testosterone but the service was terribly sloooww and I was
in a big hurrrryyy! Finally presented with a $2.00 bill, I took two
bucks and wrote the following on a nearby napkin: “Thanks for the sh…ty
service, negative tip – you owe me 25 cents.” I didn’t stick around to
see the reaction, but I’m sure it was a unique experience for the young
lady. I was, of course, like any 21-year-old, in the business of
establishing a repertoire of “unique” experiences and this was but one
notch on my Paul Bunyan Axe.

These days, my negative two-bit tip would hardly leave a dent in the
estimated $25 billion annual pool of tips left at American restaurants.
No matter. What was revealing at the moment back in 1965 was what it
said about me: impatient, willing to disappoint people (at least
strangers) and a little inconsiderate of some people. Maybe a little
imaginative too. In any case, social scientists have recently confirmed
that tipping does send a message and that it is more about
the man or the woman in the mirror than the quality of the service. The
primary reason for tipping appears to be social approval. Theoretically
it is a power tool, a financial weapon that commands “treat or trick,”
but studies since the 1940s have shown that most people do not have the
requisite nerve to stiff a waitress even for unreasonable service. And
too, William Grimes, in The New York Times, pointed out a
decade ago that a waitress who touched her customers when asking if the
meal was OK, raised her tip from 11 to 14% of the tab. Waiters’ personal
introductions, as well as crouching at the table when taking an order,
also worked famously. And here’s an interesting tidbit: Solo diners
leave an average tip of 19.7% while a five-some drops all the way to
13.2%. Evidently, the size of the tip is a factor, and a reason why
restaurants charge 16%+ for groups of six or more. That surely would
have enraged Leo Crespi, who at the turn of the 20th century proposed
the formation of a National Anti-Tipping League. While ahead of his
time, he would likely play second fiddle to yours truly 65 years later
who invented the “negative tip.” Recently my 22-year-old son, Nick,
carved a notch on his own Paul Bunyan Axe with a negative $1.00 tip
adjusted for 45 years of inflation. Tip off the old block, I’d say!

Speaking of investment tips, no clue or outright signal could
have been any clearer than the one given in December 2008, labeled
“Quantitative Easing.” While the term was new, the intent was obvious:
(1) pump public money into the financial system to replace private
credit that was being destroyed in the process of deleveraging; (2)
lower interest rates on intermediate and long-term mortgages/Treasury
bonds and in the process flush money into risk assets – most visibly the
stock market; and (3) forecast publically then hope that higher stock
prices would lead to a wealth effect, and in turn generate new private
sector lending, job creation and a virtuous circle of economic expansion
that would heal the near-fatal wounds of Lehman and its aftermath. If
that was the game plan, then so far, so good, I’d say. Interest rates
are artificially low, stocks have nearly doubled since QE I’s first
announcement in December of 2008, and the U.S. economy will likely
expand by 4% this year, although a $1.5 trillion budget deficit must
share QE’s Oscar for most stimulative government policy of 2009/2010.

Many critics, though, including yours truly, would wonder whether
Quantitative Easing policies actually heal, as opposed to cover up,
symptoms of an unhealthy economy. They might at the same time ask
simplistically whether it is possible to cure a debt crisis with more
debt. As I have discussed in numerous Investment Outlooks, the odds of an ultimate
QE success seem critically dependent on several criteria: (1) initial
sovereign debt levels that are relatively low. Reinhart and Rogoff in
their book “This Time Is Different” have suggested an 80–90% of GDP
limit to sovereign debt levels before they become counterproductive; (2)
the ability of a country to print globally acceptable scrip –
especially enhanced if that nation has the reserve currency status now
ascribed to the U.S.; and (3) the willingness of creditors to believe in
future real growth as a rebalancing solution to current excessive
deficits and debt levels.

Most observers would agree with us at PIMCO that QE I and II programs
were initiated and employed under the favorable conditions of (1) and
(2). The third criterion (3), however, is more problematic. A successful
handoff from public to private credit creation has yet to be
accomplished, and it is that handoff that ultimately will determine the
outlook for real growth and the potential reversal in our astronomical
deficits and escalating debt levels. If on June 30, 2011 (the assumed
termination date of QE II), the private sector cannot stand on its own
two legs – issuing debt at low yields and narrow credit spreads,
creating the jobs necessary to reduce unemployment and instilling global
confidence in the sanctity and stability of the U.S. dollar – then the
QEs will have been a colossal flop. If so, there will be no 15%+ tip for
the American economy and its citizen waiters. An inflation-adjusted “negative buck” might be more likely.

Washington, Main Street – and importantly from an investment
perspective – Wall Street await the outcome. Because QE has affected not
only interest rates but stock prices and all risk spreads, the
withdrawal of nearly $1.5 trillion in annualized check writing may have
dramatic consequences in the reverse direction. To visualize the gaping
hole that the Fed’s void might have, PIMCO has produced a set of three
pie charts that attempt to point out (1) who owns what percentage of the
existing stock of Treasuries, (2) who has been buying the annual supply
(which closely parallels the Federal deficit) and (3) who might step up
to the plate if and when the Fed and its QE bat are retired. The
sequential charts 1, 2 and 3 are illuminating, but not necessarily

What an unbiased observer must admit is that most of the publically
issued $9 trillion of Treasury notes and bonds are now in the hands of
foreign sovereigns and the Fed (60%) while private market investors such
as bond funds, insurance companies and banks are in the (40%) minority.
More striking, however, is the evidence in Chart 2 which points out
that nearly 70% of the annualized issuance since the beginning of QE II
has been purchased by the Fed, with the balance absorbed by those old
standbys – the Chinese, Japanese and other reserve surplus sovereigns.
Basically, the recent game plan is as simple as the Ohio State Buckeyes’
“three yards and a cloud of dust” in the 1960s. When applied to the
Treasury market it translates to this: The Treasury issues bonds and the
Fed buys them. What could be simpler, and who’s to worry? This Sammy
Scheme as I’ve described it in recent Outlooks is as foolproof
as Ponzi and Madoff until… until… well, until it isn’t. Because like at
the end of a typical chain letter, the legitimate corollary question is –
Who will buy Treasuries when the Fed doesn’t?

I don’t know. Reserve surplus sovereigns are likely good for their
standard $500 billion annually but the banks are now making loans
instead of buying Treasuries, and bond funds are not receiving generous
inflows like they were as late as November of 2010. Who’s left? Well,
let me not go too far. Temporary voids in demand are not exactly a buyers’ strike. Someone
will buy them, and we at PIMCO may even be among them. The question
really is at what yield and what are the price repercussions if the
adjustments are significant. Fed Vice Chairman Janet Yellen in a speech
just last week confirmed the theoretical rationale that Treasury yields
are directly linked to the outstanding quantity of longer-term assets in
the hands of the public. If that quantity is suddenly increased in one
year as the charts imply, what are the yield consequences? What I
would point out is that Treasury yields are perhaps 150 basis points or
1½% too low when viewed on a historical context and when compared with
expected nominal GDP growth of 5%.
This conclusion can
be validated with numerous examples: (1) 10-year Treasury yields, while
volatile, typically mimic nominal GDP growth and by that standard are
150 basis points too low, (2) real 5-year Treasury interest rates over a century’s
time have averaged 1½% and now rest at a negative 0.15%! (3) Fed funds
policy rates for the past 40 years have averaged 75 basis points less
than nominal GDP and now rest at 475 basis points under that historical

As a counter, one would argue (and I would partially agree) that
the U.S. and indeed developed global economies must keep yields
artificially low for some time if post Lehman healing is to take place.
But that of course is the point. By eliminating QE II, the Fed would be
ripping a Band-Aid off a partially healed scab. Ouch! 
25 basis
point policy rates for an “extended period of time” may not be enough
to entice arbitrage Treasury buyers, nor bond fund asset allocators to
reenter a Treasury market at today’s artificially low yields. Yields may
have to go higher, maybe even much higher to attract buying interest.

Investors should view June 30th, 2011 not as political historians
view November 11th, 1918 (Armistice Day – a day of reconciliation and
healing) but more like June 6th, 1944 (D-Day – a day fraught with hope
for victory, but fueled with immediate uncertainty and fear as to what
would happen in the short term). Bond yields and stock prices are
resting on an artificial foundation of QE II credit that may or may not
lead to a successful private market handoff and stability in currency
and financial markets. 15% gratuities may lie ahead, but more than
likely there is a negative two-bit or even eight-bit tip lying on the
investment table. Like I did 45 years ago, PIMCO’s not sticking around
to see the waitress’s reaction.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 03/02/2011 - 10:23 | 1010945 Liberty
Liberty's picture

That's a silly question.  The Fed will buy the Treasuries of course!

Wed, 03/02/2011 - 10:24 | 1010957 buzzsaw99
buzzsaw99's picture


Wed, 03/02/2011 - 10:59 | 1011074 Fish Gone Bad
Fish Gone Bad's picture

Our new found friend, Libya, will have 30 billion reasons to help buy our debt.

Wed, 03/02/2011 - 11:00 | 1011083 buzzsaw99
buzzsaw99's picture

The new Libyan gubbermint should pump out their oil as fast as they can and put all that "money" in the bank to watch it grow! LMAO!

Wed, 03/02/2011 - 11:10 | 1011118 Mad Max
Mad Max's picture

Yes, electronic entries of "money" in a "bank" are vastly more valuable than keeping on hand one of the world's most useful physical commodities.

Wed, 03/02/2011 - 11:13 | 1011130 buzzsaw99
buzzsaw99's picture


Wed, 03/02/2011 - 11:33 | 1011214 66Sexy
66Sexy's picture

problem is, where does a declining dollar fit into all this? if the dollar drops it will prop up stocks and commodities, no matter who buys treasuries...


so.. could that be the end game?

Wed, 03/02/2011 - 12:53 | 1011620 hbjork1
hbjork1's picture

The end game will be to buy land, gold, silver or some other non perishable commodity.  Perserving buying power isn't easy.  I have a couple of fixed value pensions, one from 1972, one from 1986.  The 72 pension has been reduced in buying power by a factor of 6-8, depending upon how I measure it.  BUT, the country has relative stability and there has been much progress in things like health care and technical support for the routines of daily living. 

How many of those who read this have been on a cruse lately; easily affordable by a large segment of the population.  Air travel security was a pain in the neck but my last trip to LA took about 5 hours (From Detroit) and back less than that, coutersy of the jet stream.    A short (it seems) 50 years ago you would allow 2 to 3 days, depending upon how much rest you might want in between.  International travel today is very easy. 

The games that people play have always been there.  Corruption was alledged in the building of the Erie Canal.  Histories on the Union Pacific Railroad construction sometimes highlight the graft.  The California leg of that railroad used what ammounted to slave labor from China.  Los Angeles, that is in a semi-arid zone, grew with water stolen from the ranchers along the Colorado. 

There are now 300+ million people in the country.  Even if it must be done as a share holder, the long term inflationary defense holding is productive farm land.  Effective yields are low ~1-4% through the years. And it may take a few years to recover transition costs but value is not transient.

Wed, 03/02/2011 - 10:32 | 1010983 High Plains Drifter
High Plains Drifter's picture

Chairsatan, I love it. That's about right....


Now after all of this time, who among you can argue that this is not being done on purpose, the destruction of the United States as we have known it , right before your eyes.

Wed, 03/02/2011 - 11:48 | 1011276 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

I have search for an answer to that question ad nauseam.

When the 30 yr bonds mature where is the money going to come from to pay back the principle?

Just curious....

Wed, 03/02/2011 - 10:39 | 1011010 Max Hunter
Max Hunter's picture

Correct. They have to. Any foreigner that does is a fool.. And are we to expect that over 10% of our GDP is to be borrowed for the government to spend us out of a recession/depression? How absurd. Prepare accordingly. I'm hoping for another email from my favorite ammunition site to drop another grand on ammo and clips..

Wed, 03/02/2011 - 11:13 | 1011129 Chump
Chump's picture

Someone posted this on another article.  It gave me some ideas.


Wed, 03/02/2011 - 11:19 | 1011155 grey7beard
grey7beard's picture

>> Prepare accordingly. I'm hoping for another email from my favorite ammunition site to drop another grand on ammo and clips..

So, how much have you put into medical supplies, or are you expecting incoming lead to pass harmlessly through your Terminator like body?

Wed, 03/02/2011 - 11:22 | 1011171 Mad Max
Mad Max's picture

It's only harmless if you're a T1000.  Any earlier model and it's a major nuisance, or worse.

Wed, 03/02/2011 - 11:57 | 1011318 Max Hunter
Max Hunter's picture

So, how much have you put into medical supplies, or are you expecting incoming lead to pass harmlessly through your Terminator like body?

Good one smartass.. Actually, guns and ammo are only a portion of what i've done to prepare for chaos or possible emergency. They can also be used for barter. So, the answer is yes, medical supplies along with food, water, fuel and a host of other things that would allow me to stay indoors and need nothing from stores while many other are scrambling for basic necessities.

It appears your wisdom alone will be enough to sustain you and your family if our everyday lives are interrupted with an emergency. Good luck with that.

Wed, 03/02/2011 - 12:58 | 1011648 Bob
Bob's picture

It has to be scary indeed to have kids and a house in an urban area when you contemplate armageddon. 

At times like those, being a renter who is foot loose and fancy free with a rural destination at a reasonable distance is a luxury that few can afford otherwise. 

Wed, 03/02/2011 - 14:55 | 1012199 grey7beard
grey7beard's picture

>> It appears your wisdom alone will be enough to sustain you and your family if our everyday lives are interrupted with an emergency.

Oh, I've liquidated my city holdings and moved to a bit of rural acerage.  I've a nice off grid cabin to go along with the house on the propety.  My assets as well protected as one can probably be, considering the future is not clear.

I just find the Rambo types pounding their chests about buying "another" thousand dollars worth of ammo and clips to be humorus.  Never do you hear of anyone bragging about their stores of medical supplies and other not so glamours necessities.  I'd say if the lead starts flying the average Rambo wanna-be's life expectency is going to less than one six round clip.  And bartering bullets?  Hehe, cute.

Wed, 03/02/2011 - 10:51 | 1011049 Doubleguns
Doubleguns's picture

Yes, yes Benny Madoff of the Bernanke will continue to print money to buy the bonds to create the jobs to restore the economy to make us all wealthy.  Then QE3 will makes us wealthier along with QE4 and so it goes. There is no ponzi scheme here. We are all going to be rich. 

Wed, 03/02/2011 - 10:28 | 1010948 Oh regional Indian
Oh regional Indian's picture

Not the PimpleCo blowhard who just got religion, again!

This is not looking good at all. The jawboning that is.

Orchestrated end to musical chairs.

Last one get's to buy and hold the exploding Sack.



Wed, 03/02/2011 - 10:40 | 1011001 wisefool
wisefool's picture

Yup. In the same boat of rats you got buffet telling CNBC this morning that


  • paper money is a terrible investment
  • Governments are a terrible investment
    • New government employees must not be given the same compensation as current ones. (mine:) Anybody who understands large organizational dynamics knows that junior people will not work hard for senior people if there is a chasim in incentive models for time on task.
  • The GSE garentees made finance essential free for underqualified banks and the borrowers on the edge (speculators)
  • Me and my peers could give our money to the government instead of overpaid, tax free, feel good charities. But I dont want to. A "voluntary" tax system is probably not the best one.



Standard generational "I got mine, eat some cake" from both Buffet and Gross.


Wed, 03/02/2011 - 10:43 | 1011015 Oh regional Indian
Oh regional Indian's picture


Wed, 03/02/2011 - 10:41 | 1011017 Oh regional Indian
Oh regional Indian's picture

Very interesting eh, Wisefool? A full court press on "Hate the System".

Gross Buffet: One bite and then you throw up.


Wed, 03/02/2011 - 11:20 | 1011160 wisefool
wisefool's picture

Well Buffet also said, "don't worry, the cake/pie will get bigger. when I was born people could have thought the stockmarket would have gone down 75%, but the american people succeded. I mean we built battleships, we will make alot of cars in 2020, we just have to decide who is going to get them. I mean if you look at the tax forms for the top 400 people over any period of recent time, thier rates consistantly go down"

And then he says, "I never bought a share of bank of america personally" followed by the already mentioned: (sarc/para) I don't want to give my money to the goverment, the same one that funded my entire existance, including daddy's pension and connections.

Wed, 03/02/2011 - 11:25 | 1011186 Oh regional Indian
Oh regional Indian's picture

All these liars must be having to get their noses trimmed everyday.

No wonder plastic surgery is still thriving. The hubris and the delusion is stunning.


Wed, 03/02/2011 - 13:02 | 1011676 Bob
Bob's picture

My favorite nugget from Uncle Warren this morning was "excess US housing inventory will be cleared within 12 months." 


Wed, 03/02/2011 - 14:26 | 1012102 Trundle
Trundle's picture

Young people will eat senior/old people if the incentives are right.

Humidifier yields paella.

Freeze-drying soylent green.

Wed, 03/02/2011 - 10:39 | 1011007 SheepDog-One
SheepDog-One's picture

Theyre all scrambling for a chair, and all the chairs are covered in poop.

Wed, 03/02/2011 - 10:26 | 1010961 DaveyJones
DaveyJones's picture

who bought Yugos?

Wed, 03/02/2011 - 11:21 | 1011164 aurora lancelot
aurora lancelot's picture

I got one 10,000,000,000.00 Yugoslavian Dinar bill.  I bought it on a flee market and paid 40 Euros for it.

Wed, 03/02/2011 - 12:10 | 1011380 ceilidh_trail
ceilidh_trail's picture

Ha Ha sucker- I did better than you!!! I bought a 100 trillion dollar zimbabwe note for only 5 bucks (us)!!! Guess I'm the big wheeler dealer around here...  <sarc>                     By the way, where's harry wanger these days?

Wed, 03/02/2011 - 10:27 | 1010970 Cash_is_Trash
Cash_is_Trash's picture

Ben shall monetize our problems away.

Like IceCap pointed out:

The con therefore is to keep short-term rates as close to zero as possible, while printing money to keep longer-term interest rates as low as possible.

We're in for a bushwhacking

Wed, 03/02/2011 - 10:28 | 1010975 Mad Max
Mad Max's picture

What does PIMCO put their money in if it's not US treasury bonds or stocks?  It's not like you can get a meaningfully insured bank account for the figures they're dealing with.  Does this mean they'll be going into commodities?  Chinese bonds?  Farmland in third world countries?  Their assets don't exist unless they're parked in something.

Wed, 03/02/2011 - 10:38 | 1011008 kalum
kalum's picture

Like you, I NEED to know, Where, where where?

Wed, 03/02/2011 - 10:45 | 1011028 Mad Max
Mad Max's picture

After posting my first comment, I started wondering if this statement could just be a threat used in bargaining to get the Fed to raise interest rates to a level at which PIMCO wants to buy, with the possibility of triggering a debt crisis as the hammer.  Since I'm still puzzled at what other investments could make sense with PIMCO's asset base and focus, this is what I'm leaning toward.  Any other market that PIMCO goes into will be distorted and driven up by the size of the funds involved.  Although most of us commenters would make out well if they decided to pull out of FRNs and go into gold/silver - which would probably make Zimbabwe's currency collapse look glacial in comparison to what that move would trigger for FRNs.

Wed, 03/02/2011 - 11:26 | 1011192 SilverBaron
SilverBaron's picture

The ultimate asset.  Human capital. (slaves)

What would the going rate be?  50 cents an hour in China.

Wed, 03/02/2011 - 10:53 | 1011056 I am a Man I am...
I am a Man I am Forty's picture

lately mexico and brazilian bonds with more yield, among other places

Wed, 03/02/2011 - 14:07 | 1012017 Meme Iamfurst
Meme Iamfurst's picture

a few months back, Mr. Bill bought a Brazilian landfill dump size position of crap mortgages from the Fed at a discount to what the Fed paid ( gosh, what a surprise). 

The kicker here is that ol' Bill did it on margin as i read here on ZH, less than 25% down payment.  Now Bill had the assurance of 'those in the know' that these mortgages would be worth more than he 'paid' and generalte a much needed yield.   Annnnn, wrong answer, they are underwater and thus his leverage is in need of a Australian sized band-aid.  He ain't been happy with ol'Ben B ever since, and has been dishing Benny like a jilted girl friend.

Wed, 03/02/2011 - 10:29 | 1010978 spartan117
spartan117's picture

Pimco just issued a "sell" rating on everything.


Sell everything and convert to what?   Dollars?  Surely, you can't be serious.

Wed, 03/02/2011 - 10:35 | 1010999 Mad Max
Mad Max's picture

Even if they could convert it all into dollars - how?  Are you talking mountains of paper Federal Reserve Notes, bearing no interest and with theft risk?  Or an electronic entry in some bank?  Insuring one depositor for $250k is one thing, insuring one for $100B - c'mon, the only entity that could (maybe) do that is the US federal government, which they just declared is not their preferred credit risk.

As I noted above, I don't even see how they get out of the standard investments in light of the asset base they have.

Wed, 03/02/2011 - 10:36 | 1011003 SheepDog-One
SheepDog-One's picture

Convert to firearms, ammo, and food stockpiles, or die. And dont call me Shirley.

Wed, 03/02/2011 - 10:50 | 1011046 Cash_is_Trash
Cash_is_Trash's picture

R.I.P. Leslie Nielsen

Wed, 03/02/2011 - 10:51 | 1011048 ivana
ivana's picture

USD could be one of scenarios before whole ponzi collapses. Interest rates aprox 15% and USD high high much higher than today... wouldn't you buy?

And how to get worthless USD so high? Just ask "utility magicians"...

Wed, 03/02/2011 - 10:53 | 1011054 spartan117
spartan117's picture

Interest rates at 15% would mean 100% of the Treasury's revenue would be diverted to paying interest on existing debt.  That's armageddon for the USA.

I wouldn't take USD if it were given to me at that point.

Wed, 03/02/2011 - 11:13 | 1011124 ivana
ivana's picture

How about bond buy back from "friendly bond buyers"? So there's general lack of USD liquidity, generaly repatriation, oil very high etc etc ... fin armageddon generaly.

And satan still has power to print and he still have "friends" who need USD cash - so buy back for 20% of original debt?

+ under desk favors for "friends"

Wed, 03/02/2011 - 12:29 | 1011486 John Wilmot
John Wilmot's picture

Exactly right. The Fed has but two choices: monetize treasuries ad infinitum and stoke hyperinflation, or stop monetizing treasuries, allow Treasury to default, and then experience hyperinflation as the dollars abroad repatriate and the ones at home are dumped by everyone en masse.

Even if Congress balanced the budget, there's still a tremendous amount of old debt to roll over all the time, and in order to fund that through real investment, rates would have to rise so much that I think they'd find themselves right back where they started, with massive deficits and Fed funding. And it is clear that the IMF/World Bank and BRICS are actively preparing for a post-dollar international monetary system - game's over. King Dollar's at the flee Paris stage, soon to be hauled back, placed under house arrest, tried, and guillotined. Then comes the Terror...and later, the new consul-for-life.

Wed, 03/02/2011 - 11:03 | 1011092 bs
bs's picture

Sure I can... And don't call me Shirley!

Wed, 03/02/2011 - 11:06 | 1011106 potatomafia
potatomafia's picture

If this does not indicate a treasury bubble, i dont know what does.  The debt market is so large people cant even fathom what to do without it!  and its a good point.  They will have to get into things, assets.. 


The treasury market is the only thing preventing hyperinflation, no? 

Wed, 03/02/2011 - 12:41 | 1011552 MsCreant
MsCreant's picture

And money locked up in the derrivatives market?

Wed, 03/02/2011 - 13:34 | 1011813 potatomafia
potatomafia's picture

I dont know much about that, other than it is huge.. 


Are you saying that the derrivatives market could absorb the money leaving treasuries?  or are you saying that the money would not only flow out of treasuries, but also out of the dirrivatives market?


I think you are implying that it would also flow out, and increase prices even further..

Wed, 03/02/2011 - 14:55 | 1012200 MsCreant
MsCreant's picture

Money locked in the derrivatives market may also be preventing hyperinflation. I may be wrong though. If they blow up, that is a deflation bomb (can the default insurance really pay off if the margin call from hell rings across the globe? NO!). But it is "value" that is parked. I am no expert, but my brain, like yours, likes to play here on this site.

Your supposition was a creative one.

Wed, 03/02/2011 - 10:28 | 1010980 Jason T
Jason T's picture

The devil.. or the father of lies.  

That would be the man with the printing press.

Wed, 03/02/2011 - 10:29 | 1010981 Al89
Al89's picture

Anyone with a better knowledge than me tell me what the hell is going on with the 10yr since yesterday?


Wed, 03/02/2011 - 10:47 | 1011033 pendragon
pendragon's picture

better to get your charts from


thing is on a relative value basis USTs look dirt cheap next to equities.

Wed, 03/02/2011 - 10:47 | 1011035 Rusty Shorts
Rusty Shorts's picture

Wow, wish I could help, thanks for pointing that out.

Wed, 03/02/2011 - 10:32 | 1010987 Milton Waddams
Milton Waddams's picture

Simple. Higher oil prices mean MENA got cash to buy'em.

Wed, 03/02/2011 - 10:32 | 1010990 Misean
Misean's picture

The Feral can never run out of money! Why would it stop buying government debt?

Wed, 03/02/2011 - 10:35 | 1010998 SheepDog-One
SheepDog-One's picture

Who will buy bonds OR stocks when the FED ceases to be the only buyer since S&P 666? NOT ME!

Wed, 03/02/2011 - 10:36 | 1011000 JonTurk
JonTurk's picture

he's sending a postcard to the Bernank to keep on printing and feeding the squid

Wed, 03/02/2011 - 10:41 | 1011016 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Gold, mother fuckers!!!!!!!!!!!!!!!!!!!!!!

Wed, 03/02/2011 - 11:36 | 1011235 SilverBaron
SilverBaron's picture

You can't stick your d!©k in it.

Women mother fuckers!!!!

When China realises that it's invasion time.

How many men do they have that will never have a wife because they killed so many newborn girls?  Those siberian girls are starting to look pretty good right about now.

Wed, 03/02/2011 - 12:32 | 1011496 Mad Max
Mad Max's picture

Some of the siberian girls I've met are downright hot.  A lot of the people in siberia are just Russians who went east, voluntarily or otherwise.

Wed, 03/02/2011 - 10:41 | 1011020 AN0NYM0US
AN0NYM0US's picture

I wonder if Pimco's attorneys adivse Billy on the content of his missives - as a huge beneficiary of  Fed and Treasury largesse, Billy seems to have a penchant for  revealing the hand he has or is about to play

Wed, 03/02/2011 - 10:42 | 1011022 trav7777
trav7777's picture

so, what's he gonna buy, then?

Wed, 03/02/2011 - 10:57 | 1011067 equity_momo
equity_momo's picture

He will. He is bluffing. Do not play poker with Gross. Hes always holding aces.

Wed, 03/02/2011 - 11:38 | 1011230 Boston
Boston's picture

What's he gonna buy?  Treasuries.

He scaring folks to get a better purchase price for himself.

In a short while, the Fed will have to chose between supporting Treasury prices (and by extension the US government, as well as real estate) or equity prices. It won't be able to prop up both.

Guess which they'll chose? They'll ease up on equities and a tidal wave of funds (part of which they've already created) will run--scared--into Treasuries.

Betchya Bill Gross will be loaded up to his eyeballs in Treasuries before the panic sell off happens.

Look at 2008. 2011 may rhyme.

Wed, 03/02/2011 - 10:47 | 1011031 Just Observing
Just Observing's picture

It't a silly assed question because the FED will NEVER quit buying the debt.

The REAL fricking question is when will people stop providing real things for silly assed pices of green paper ?  I laugh to myself every time I buy a silver coin with paper and wonder "How much longer is THIS gonna go on ? "


Out a one ounce Eagle in one hand, and a coupel of tweny buck paper notes in the other, and if you can't instinctively tell the difference, you deserve the screwing you are going to get.

Wed, 03/02/2011 - 11:56 | 1011308 AndrewJackson
AndrewJackson's picture

I did the same yesterday when I went in for a purchase. It truly is amazing. You exchange those stupid discounted green paper coupons and you get back a medium of exchange that has served as REAL money for thousands of years.

Wed, 03/02/2011 - 10:48 | 1011039 youngman
youngman's picture

Yes its kind of funny...Cash is bad....bonds and treasuries are bad...Muni´s are bad....that leaves metals....hmmmmmm

Wed, 03/02/2011 - 10:51 | 1011051 Tense INDIAN
Tense INDIAN's picture

Google has targets less than 300 in coming months.....



I have no doubt that the Broader market will take a hit

Wed, 03/02/2011 - 10:54 | 1011059 Thorny Xi
Thorny Xi's picture

The Fed will stop buying dollar debt sometime after the dollar has become irrelevant. 

Wed, 03/02/2011 - 10:57 | 1011065 Widowmaker
Widowmaker's picture

"Whats he gonna buy?"

The money is going to places where people actually work and produce something.

Anywhere but the USA.

Wed, 03/02/2011 - 10:56 | 1011066 netnil
netnil's picture

PIMP CO in the world's oldest profession

Wed, 03/02/2011 - 11:00 | 1011077 Shameful
Shameful's picture

The game dictates only one course of action.  The Fed will buy until there is no dollar or Fed left.  If they stop buying rates move to an area where revenue cannot justify any low rate, forcing rates higher which make the revenue picture even worse, until we have the glorious default.  For those who do not believe me then take the yearly deficit and plug it into world gdp, and comes out to 2.5% of world GDP.  Now ask yourself is the world willing to toss that money into a rat hole, forever.  Oh and remember everyone is running the same scheme as the US so take their deficits into account as well.  Since the dollar is a faith based currency I can only assume an open default might hurt that faith.  So either way dollar dies and ponzi ends.  The Fed will buy because it's the path that keeps the game going on the longest and allows for the longest pillage.

As to what Gross is buying I'm curios myself, talking about a lot of fun bux as his disposal for investing.

Wed, 03/02/2011 - 11:23 | 1011142 WaterWings
WaterWings's picture

Imagine if, just like in the movies, our heroes gasp: "He's amassing an army for invasion."

Is it unreasonable to imagine corporations of the 21st century hiring mercernary armies when social brush fires are spreading and borders are dissolving?

If I were a megalomaniac I would be rubbing my hands together, "It's show time!"

Wed, 03/02/2011 - 11:25 | 1011185 Mad Max
Mad Max's picture

Actually amassing an army would probably be a relatively good use of the funds, if he could do it.

I'm also picturing Saito in Inception: "I bought the airline."

You may want to read "Snow Crash" if you haven't already.

Wed, 03/02/2011 - 11:30 | 1011211 Shameful
Shameful's picture

Already happened in Africa.  There are areas where society broke down and certain groups used force to extract mineral wealth.   I expect that any man with a pool of capital, political connections, and no morals will do quite well in the coming years.

Wed, 03/02/2011 - 13:03 | 1011674 pods
pods's picture

The FED has reached the coffin corner.  If they speed up, we get a currency crisis and hyperinflation.  If they slow down, we get a deflationary crash, then hyperinflation.

Either way they are stuck.  Best they can hope for is a big turnaround somehow and they can ease back on the printing.  With what our modern economy is based on, I really don't see this happening.  If we actually manufactured stuff besides Hopium we might have a chance, but since we don't, we just cruise along with increasing instability in the world economy and hope we are the last man standing.


Wed, 03/02/2011 - 10:59 | 1011079 Seasmoke
Seasmoke's picture

was he short changing hard working waitresses 45 years ago ?

Wed, 03/02/2011 - 13:31 | 1011815 Rogerwilco
Rogerwilco's picture

None of the sharpies on ZH get Bill's subtle joke? He's making a jab at the negative yield that occurred for the first time on TIPS last October. It was a marker, a turning point.

Wed, 03/02/2011 - 11:00 | 1011082 Johnny Lawrence
Johnny Lawrence's picture

More bond bashing...the most detested asset class on the planet.  I work for a big brokerage and we're having an office meeting on Thursday about reducing fixed income exposure. 

If you're a contrarian, the sentiment on bonds couldn't be any more extreme in one direction.

Wed, 03/02/2011 - 11:03 | 1011095 Johnny Lawrence
Johnny Lawrence's picture

HA.  I got junked.  Hilarious.  For what?  Telling the truth?

Wed, 03/02/2011 - 12:10 | 1011386 topcallingtroll
topcallingtroll's picture

losers don't like to hear educated commentary.

Wed, 03/02/2011 - 11:16 | 1011138 Shameful
Shameful's picture

Can't help but feel it would be akin to running into a burning building to try to look for loose change.  I cannot fathom an event that would make treasuries desirable in the long term.  Oh sure there can be short term fluctuations, and a market crash would probably boost them up for a while, but the same systemic rot remains.  Short of a Martian bailout or cold fusion I'm not seeing a way to push the economy into overdrive to give strength to the ponzi.

So I can either try to trade and time the market or I can sit in PMs.  I'm not a pro so I think I'll sit on my metals and my miners for now.  Those who can get in and get those pennies out from the inferno, good luck and God speed!  You're better men then I.

Wed, 03/02/2011 - 12:11 | 1011394 topcallingtroll
topcallingtroll's picture

I am with you here.  It may not be as bad as people expect.  The end of QE may result in deflationary pressure and a rising bond price.

Wed, 03/02/2011 - 11:00 | 1011085 RobotTrader
RobotTrader's picture

Gross's comment pretty much makes it official.

Time to back up the truck on Treasuries, as a rally of epic proportions is probably imminent.

Especially if stocks continue to head south.

Notice how both the 11 day and 22 day have turned up.

Wed, 03/02/2011 - 11:06 | 1011105 Savonarola
Savonarola's picture

D'accord. All I own is bonds and PM. QE3... QE3...

Wed, 03/02/2011 - 11:37 | 1011242 Captain Kink
Captain Kink's picture

strange that the recent Treasury rally was not viewed as a flight to safety... I guess it took the flight to safety to absorb and reverse all of the selling that was happening before the MENA issues.  it sure looks like we have rallied the last 3 weeks, and while the dollar is collapsing, which is also strange.  Maybe the Treasury shorts are just taking profits?

Wed, 03/02/2011 - 23:14 | 1013857 unununium
unununium's picture

Agreed.  No way am I buying but I sold my TBT and that says something.

Wed, 03/02/2011 - 11:03 | 1011091 Savonarola
Savonarola's picture

I knew today would be a bad day when I say Warren Buffet on TV saying that we should raise his taxes (as well as everone else's).

He can afford the increase - we can't.

Just another GS-ponzi scheme to bail out his buddies.


Wed, 03/02/2011 - 11:04 | 1011098 AccreditedEYE
AccreditedEYE's picture

Main Street's balance sheet is in NO shape to take the baton from the Fed. If you want treasuries bought, you gotta crush the market. I said it last summer and was proved a fool thanks to Benny and his crew. You simply can't have cake and eat it too.

Wed, 03/02/2011 - 11:18 | 1011152 Shameful
Shameful's picture

Sure they can, for a while.  They just need to cycle the money from one to the other.  So a few market collapses and rallies should do that.  Well until even the most naive sucker learns not to play their game.  But people are none to bright and I think the Fed has some room to maneuver should they so choose.

But for people like me, I'll just stick around where I'm at and watch the show.  Might not be making lots of trading profits but I know where this train is going so I'm waiting for the final destination.

Wed, 03/02/2011 - 11:31 | 1011210 AccreditedEYE
AccreditedEYE's picture

You scared the crap out of me last time you mentioned the final destination Shameful. :) How much more wiggle room do they really have? The market sees there are just too many plates to spin for them to manage anymore? Aside from just the carry cost/national debt issue, we have commodity prices that will cut deeply into growth which stifles the repayment of that debt, we have municipalities and pensions ready to crack. (wait till all these disaffected public employees and labor unions come to understand the simple fact that: there is NO money to fight over!)AND, because resources have been deployed only to the strongest in this country over decades, there is little innovation or motivation to build up the next generation of U.S. business. Whatever the equity market is smoking, I want to buy in size. :)

Wed, 03/02/2011 - 11:52 | 1011295 Shameful
Shameful's picture

Well I am the bastion of hope and joy, bitter old man in a young man's body :)

By room to maneuver I mean move from one side of the boat to the other.  The dollar will die, no saving it now.  But they can jump from inflation to deflation by showing the infinite bad debt black hole and smashing the market.  The masses should respond in a panic and will likely go to the "safety" of treasuries.  Problem is the treasury bond is losing its safe haven appeal so it can only be done once maybe twice before such a move will just blow everything up.  Having said that I expect them to crash the stock market to save the bond market at least once.  It it was me doing it I would at the same time use my infinite fiat to hammer commodities themselves and commodity producers.  Need to scare the longs enough so hopefully they will be hesitant to go back to long after the Fed reignites the market and brings it back up.  And they will have to reflood with money because without inflation the system seizes up and dies, so the extend and pretend will be employed to keep the pillage going as long as possible.

Wed, 03/02/2011 - 12:04 | 1011352 Captain Kink
Captain Kink's picture

What better way to support the treasury market than to collapse the stock market (again) to cause a massive flight back to bonds?  When stimulus and QE are gone, the economy will slip to it's actual growth rate.  I think this is why rates aren't higher.  So, rather than interest rates being held artificially too low, it is nominal economic growth that is artificially (and temporarliy) too high.  If growth slips to 1%, or less, Bonds will have to rally.  This is what the fed knows, they know how weak the economy really is.  They take the back up in rates since the beginning of QE and increased inflation expectations as a sign that their policy is working, so they will do more of the same...QE3, 4, 5... are on the way.  Until fantasy employment numbers improve and the dollar and the debt (and your savings) are deflated to half their value.  So, the rumored end of QE causes stocks to get crushed, bonds to rally, and obviates the "necessity" of QE3.  goodbye dollar.


Wed, 03/02/2011 - 11:16 | 1011137 plocequ1
plocequ1's picture

Who is going to pay? Aint gonna be me. I gots me some spending to do at The Apple store . Otherwise, Im broke.

Wed, 03/02/2011 - 11:20 | 1011157 clones2
clones2's picture

Ok - question...

Current nat'l debt $14.2 trillion.

Proposed obama deficit for 2011 $1.3 to $1.5 trillion

Congress will raise debt ceiling in March/April...

I'm guessing QE3 would mean about 100% chance the debt ceiling would need to be raised again by year-end...

What #'s are they throwing around for the amount to raise the current ceiling by?  2 trillion?

Is our debt really increasing that quickly?



Wed, 03/02/2011 - 11:25 | 1011179 Mad Max
Mad Max's picture

Is our debt really increasing that quickly?

No, it's increasing faster than that if you consider all the hidden shenanigans going on.  And worse if you make logical guesses extrapolating current trends.  WW3 is going to cost a lot of fiatscos.

Wed, 03/02/2011 - 11:22 | 1011165 Djirk
Djirk's picture

you will see more cartoons like country needs taxes for democracy!

Wed, 03/02/2011 - 11:47 | 1011267 Caviar Emptor
Caviar Emptor's picture

Breaking: 2 US soldiers shot and killed at Frankfurt AIrport

Wed, 03/02/2011 - 11:54 | 1011302 truont
truont's picture

Who will buy Treasuries when the Fed doesn’t?

No one.

That is why the FED will not stop buying Treasuries.

QE to infinity.

Wed, 03/02/2011 - 11:56 | 1011315 AboutAverage
AboutAverage's picture

There are always options and buyers of risk.  If the FED jacks the rates up to 20% (wont happen), then there will be lots of buyers of treasury debt.  The problem is that you will have foreclosures exploding, Net Asset Values (NAVs) declining across the board (Houses, bonds).   This already happened in the 70s.  Stop pretending like nobody knows the history of stagflation.  The problem this time that is different from the 70s is that the NAVs decline will destabilize companies balance sheets via Japan's problem.  We are stuck in a continuous dump of poor policies and unsound investment like Japan.

Wed, 03/02/2011 - 12:36 | 1011523 justbuygold
justbuygold's picture

The problem is worse than even Bill Gross implies.

Problem # 1 - Who will buy the 70 % of supply that the U.S needs for funding.  This could be as much as 1.0 Trillion / yr

Problem # 2 -  Who will buy the 1 trillion or more that Bernake says will be unwound in a relatively short period of time( said this today in testimony)  once the economy picks up or inflation rates rise.

So you have 2 trillion of supply with little buyers at what is an artifcial level.

What does the street do when they see a big seller....they frontrun.  If the artifical level is 1.5% lower and it need to rise that much just to get to even then the street will take it the other way by 1.5 %  before they become willing to buy.

A 3% harcut to the FED holdings is disasterous and as pointed out on ZERO HEDGE....will bankrupt the FED.

Its no wonder GRoss is bailing out !



Wed, 03/02/2011 - 12:40 | 1011547 Xkwisetly Paneful
Xkwisetly Paneful's picture

DEC 15-DEC 22, 2008 the yields fell below transaction costs.

No safe haven there at all.

The world really didn't pay the US to hold their money it was all some kind of mirage.


Wed, 03/02/2011 - 13:02 | 1011673 Ned Zeppelin
Ned Zeppelin's picture

For whatever reason, Gross/PIMCO appears to be calling it exactly as it is.  Which is disturbing in and of itself.

Rough sailing ahead, and oil is everything. Every dollar more than (I think) around $80/barrel puts us deeper into trouble and kills at the margin.

Wed, 03/02/2011 - 14:12 | 1012043 Bicycle Repairman
Bicycle Repairman's picture

Here's a hypothetical:  The price of oil gets run up.  The Arabs earn money out of the hides of the American motoring public, and then buys treasuries.  We've seen this film before, no?

Wed, 03/02/2011 - 15:21 | 1012288 hambone
hambone's picture

Fed can't announce QE3 now w/ oil at $100+, PM's at all time highs, ags surging.  If BB sez more QE...look for oil to rival all time highs by summer and economies round the world to collapse.

Without QE3 (to replace the SOMA / POMO running $2T on an annual basis), without SS surplus soaking up more T's ($200B), without pass through to states / munis ($200B)...we are looking at a cliff dead ahead starting July 1'ish.  $5T in T's to be rolled / new issuance in next 12 months...that's something like 8% of world GDP just going into US T's!!!

Is there a middle ground?  Foreigners / Middle East step up???  Hard to imagine China, Japan, Saudi massively increasing their T exposure in the face of dollar devaluation.  Must be a middle ground but I don't see it - Repubs want their theatrical deficit reductions and won't go for state / muni bailouts, additional stimulus. 

It must be time for a war cause I don't see any realistic options for a huge crisis only four months away?!?

Wed, 03/02/2011 - 15:31 | 1012328 Bicycle Repairman
Bicycle Repairman's picture

The end game for all of this is, and was from the beginning, a three letter word beginning with 'w' and ending in 'r'.

Wed, 03/02/2011 - 16:54 | 1012716 PulauHantu29
PulauHantu29's picture

No wonder investors are buying oil siulver, gold...all the Hard Assets.

Wed, 03/02/2011 - 16:59 | 1012733 Big Ben
Big Ben's picture

Hats off to Zero Hedge and Bill Gross for asking what is really the $64,000 question. My thinking is that with commodity prices soaring, the Fed will be reluctant to continue with another round of QE. Also if the Fed went for another 6 months of QE, that would mean that it might need to mop up the excess liquidity in 2012, an election year. So my guess would be that there won't be another round of QE even though the economy is still very weak. So it appears likely that higher interest rates are in store for us later in the year.

The question which is still open is whether the Fed will decide to mop up the QE liquitity it has added by enacting a "Quantative Tightening" program. This could be painful!

Wed, 03/02/2011 - 17:22 | 1012805 twotraps
twotraps's picture

What is anyone seriously doing about protecting assets other than gold?  When we look back 10 yrs from now...what is that one thing we only wish we'd seen?  What is that obvious 10X trade or obvious place to put dollars? 

Thu, 03/03/2011 - 01:37 | 1014183 Itsalie
Itsalie's picture

On the contrary, the Fed is in a great position. QE2 deliberately pushed real yields too low, leading to higher oil and food prices and higher bond yields which would "threaten this fragile recovery". But core inflation (which excludes both oil and food) would remain low per diktat of the relevant central planning authorities, hence allowing Ben to continue printing in QE3. When Ben and Yellen mentioned "inflation" recently, of course they were not referring to headline inflation.

And as usual, Bill Gross is talking down bonds so he can load up again on more cheap treasuries.

Thu, 03/03/2011 - 11:40 | 1014940 MarcusAurelius
MarcusAurelius's picture

Interesting coming from Gross who likely has received very favorable bond buying insider information and deals from the US government for it's large fund. Almost like calling the kettle black? However I have long suported his views not just in America but in the rest of the civilizaed world...that being.....unless I know nothing about accounting 101 and basic (real life) economics then perhpas you can continue to spend your way out of an insolvency problem? I have never seen it done and history would suggest I am right but for the length of time to see such a calamity unfold. This is the very reason I say Canada is in deep shit too.....accounting 101 I would think should and does matter in the long run.

Thu, 03/03/2011 - 17:33 | 1016469 stiler
stiler's picture

Can someone intelligently explain to me the difference between what Congress did under the Dems and what is happening with this QE, I,II,III? The second is being foisted upon us by the Fed, right? And TARP?

Do NOT follow this link or you will be banned from the site!