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Bill Gross: "The Treasury Market Is On A Collision Course With Financial Repression"
In his latest just released monthly letter, Bill Gross continues to explain why those expecting a cover of PIMCO's short treasury exposure will be disappointed for at least one more month: "Although we have warned for
several years of the deteriorating creditworthiness of America’s AAA
rating, our de minimis Treasury positions had less to do with much more
immediate issues than America’s balance sheet prospects. We are highly
sensitive to the pocket-picking policies that governments in general
deploy to right the ship." This time the symbol for the US (and global) economy, and specifically artificially low interest rates is a "tanker" analogy: " While the global
financial tanker was on automatic pilot, we had changed course well in
advance and it has been relatively smooth sailing since." Needless to say, Gross is convinced said ship is on a collision course. Ergo the title of this month's piece: "The Caine Mutiny." As usual, it is the 'Treserve' that is at fault for doing everything in its power (selling treasury puts?) to keep rates artificially low, a move which Pimco not surprisingly not in favor of: "holding Treasuries at
these yield levels for an extended period of time represents an
abdication of responsibility." Yet Gross does not advocate an outright mutiny, but renewed vigilance: "PIMCO advocates not so much a mutiny but a renewed vigilance on this new ship, stressing bond market “safe spread” alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies." Bottom line: "The
Treasury market is on a collision course with financial repression and
it is time to adjust your rudder to starboard to get home safely." Undoubtedly the usual response will be that Gross is just being unjustly alarmist. That is, until he is proven 100% correct.
From The Caine Mutiny (Part 2):
- Low policy rates and the increasing negative real yields that
they engender as inflation accelerates represent an immediate threat to
investment portfolios. - Bond prices don’t necessarily have to go down for savers to get skunked during a process of “debt liquidation.”
- PIMCO advocates a renewed vigilance, stressing bond market “safe
spread” alternatives available globally, including developing/emerging
market debt at higher yields denominated in non-dollar currencies.
The Gross household is a robe-wearing household – at least on the
distaff side. Sue has a closet full of them, all white, and is thrilled
each and every Christmas with a new white one under the tree. Go figure.
I on the other hand am a little more casual about nighttime attire, a
habit I picked up or at least observed during my Navy years in the South
China Sea. But I am getting ahead of myself. Back in 1969, yours truly
was a lowly ensign whose responsibility among other things was to
substitute for the captain when he was sleeping. Vietnam era captains
couldn’t be at the helm 24/7 so during relatively calm hours, the
benchwarmers got a chance to quarterback the ship. Such was the case on a
warm September evening, making 20 knots on our way home to San Diego in
the middle of the vast and totally empty Pacific Ocean, 2,000 miles
west of Honolulu. I was standing the dreaded “mid-watch” – midnight to
4:00 am – and under instructions to wake the captain if anything
“unusual” took place; FAT chance, aside from the occasional mermaid or sea monster sightings, and no one ever woke the captain up for that.
distaff side. Sue has a closet full of them, all white, and is thrilled
each and every Christmas with a new white one under the tree. Go figure.
I on the other hand am a little more casual about nighttime attire, a
habit I picked up or at least observed during my Navy years in the South
China Sea. But I am getting ahead of myself. Back in 1969, yours truly
was a lowly ensign whose responsibility among other things was to
substitute for the captain when he was sleeping. Vietnam era captains
couldn’t be at the helm 24/7 so during relatively calm hours, the
benchwarmers got a chance to quarterback the ship. Such was the case on a
warm September evening, making 20 knots on our way home to San Diego in
the middle of the vast and totally empty Pacific Ocean, 2,000 miles
west of Honolulu. I was standing the dreaded “mid-watch” – midnight to
4:00 am – and under instructions to wake the captain if anything
“unusual” took place; FAT chance, aside from the occasional mermaid or sea monster sightings, and no one ever woke the captain up for that.
Well, around 2:00 am there was
a sighting – quite remarkable, actually, because the Pacific is BIG and
the occasional freighter was rare indeed. Ten miles at 15° off the bow,
I spotted an oil tanker on the horizon, apparently headed our way.
There is a Navy axiom that even an idiot ensign can remember, which
tells a navigator whether or not a mid-ocean collision is possible –
“constant bearing, decreasing range,” or CBDR for short. If, for
instance, that tanker was closing to five miles and was still positioned
15° off the bow, well, there would be a growing chance that we would
meet head-on five miles later. Ah, wouldn’t you know it – this tanker
had a CBDR and yours truly was the only one who was aware of it. Tankers
set their controls on automatic pilot during the midnight hours, so the
approaching ship wasn’t about to change course. I was the only officer
awake. Not for long, though – I called up the captain like the good
little ensign I was, and here, dear reader, is where I finally
circle back to the underwear. A captain in full dress uniform is an
impressive sight – four stripes on the epaulets, heavily starched white
shirt. “Yes Sir!” is the almost automatic response. But an unshaven,
60-year-old, pot-bellied captain in his underwear? Now there’s a
disconcerting sight. “I got the deck,” he said, which meant he was
assuming control as he plopped into the captain’s chair with a toot and
an expulsion of natural gas worthy of the prior evening’s pork and
beans.
a sighting – quite remarkable, actually, because the Pacific is BIG and
the occasional freighter was rare indeed. Ten miles at 15° off the bow,
I spotted an oil tanker on the horizon, apparently headed our way.
There is a Navy axiom that even an idiot ensign can remember, which
tells a navigator whether or not a mid-ocean collision is possible –
“constant bearing, decreasing range,” or CBDR for short. If, for
instance, that tanker was closing to five miles and was still positioned
15° off the bow, well, there would be a growing chance that we would
meet head-on five miles later. Ah, wouldn’t you know it – this tanker
had a CBDR and yours truly was the only one who was aware of it. Tankers
set their controls on automatic pilot during the midnight hours, so the
approaching ship wasn’t about to change course. I was the only officer
awake. Not for long, though – I called up the captain like the good
little ensign I was, and here, dear reader, is where I finally
circle back to the underwear. A captain in full dress uniform is an
impressive sight – four stripes on the epaulets, heavily starched white
shirt. “Yes Sir!” is the almost automatic response. But an unshaven,
60-year-old, pot-bellied captain in his underwear? Now there’s a
disconcerting sight. “I got the deck,” he said, which meant he was
assuming control as he plopped into the captain’s chair with a toot and
an expulsion of natural gas worthy of the prior evening’s pork and
beans.
Well, to this point, the incident was a paragon of human comedy not
tragedy, but it quickly turned serious. Two miles 15°, one mile 15°,
1000 yards 15° – “Captain – constant bearing, decreasing range!” Ah, but
El Capitan wasn’t hearing me – he was asleep at the helm, and
half-naked no less: in command, in his underwear, and off somewhere in
la-la land. Twenty seconds after my warning, the tanker came within 20 yards of cutting us and 150 young sailors in half.
I in my fascination with a captain in his jockey shorts had assumed he
was awake and knew what he was doing. He in his Fruit of the Looms and
2:00 am exhaustion was incapacitated, temporarily incompetent, and
anything but a Naval captain. “What the hell was that?!” he screamed as
it passed astern after nearly disemboweling our 300-foot destroyer. I
was speechless and subject to a potential court martial, so I meekly
replied, “A tanker, sir”. “The Grim Reaper” would have been a better
description. It is with that as a reminder that there are no white robes
under the Christmas tree for yours truly. I wear a t-shirt and jockey
shorts if only to remind me of a sleeping pot-bellied captain and that
old Navy adage – constant bearing, decreasing range – constant bearing,
decreasing range.
tragedy, but it quickly turned serious. Two miles 15°, one mile 15°,
1000 yards 15° – “Captain – constant bearing, decreasing range!” Ah, but
El Capitan wasn’t hearing me – he was asleep at the helm, and
half-naked no less: in command, in his underwear, and off somewhere in
la-la land. Twenty seconds after my warning, the tanker came within 20 yards of cutting us and 150 young sailors in half.
I in my fascination with a captain in his jockey shorts had assumed he
was awake and knew what he was doing. He in his Fruit of the Looms and
2:00 am exhaustion was incapacitated, temporarily incompetent, and
anything but a Naval captain. “What the hell was that?!” he screamed as
it passed astern after nearly disemboweling our 300-foot destroyer. I
was speechless and subject to a potential court martial, so I meekly
replied, “A tanker, sir”. “The Grim Reaper” would have been a better
description. It is with that as a reminder that there are no white robes
under the Christmas tree for yours truly. I wear a t-shirt and jockey
shorts if only to remind me of a sleeping pot-bellied captain and that
old Navy adage – constant bearing, decreasing range – constant bearing,
decreasing range.
Forty years later, I find myself in a similar position, this time,
however, displaying the four-striped epaulets myself as a co-captain of
the SS PIMCO, a $1.2 trillion carrier designed to travel the world and
the seven seas in a quest for principal protection and alpha generation.
And I thought the mid-watch was a hassle! Whatever it is, Mohamed and I
either alternately or in unison maintain 24-hour surveillance for
tankers on a collision course with your investment portfolios and
savings. There should be no “what the hell was that!” moments at PIMCO,
even on Lehman Day 2008. Indeed, there was not. While the global
financial tanker was on automatic pilot, we had changed course well in
advance and it has been relatively smooth sailing since.
however, displaying the four-striped epaulets myself as a co-captain of
the SS PIMCO, a $1.2 trillion carrier designed to travel the world and
the seven seas in a quest for principal protection and alpha generation.
And I thought the mid-watch was a hassle! Whatever it is, Mohamed and I
either alternately or in unison maintain 24-hour surveillance for
tankers on a collision course with your investment portfolios and
savings. There should be no “what the hell was that!” moments at PIMCO,
even on Lehman Day 2008. Indeed, there was not. While the global
financial tanker was on automatic pilot, we had changed course well in
advance and it has been relatively smooth sailing since.
The metaphor begs the question however as to what tanker is now
on a constant bearing decreasing range, and indeed there would seem to
be many such blips on the radar screen: global imbalances in trade,
finance and currencies; excessive private and sovereign debt levels;
growing disparities in wealth between the rich and the poor; aging
demographics threatening aging and younger generational priorities. Lots
of ships out there. Our upcoming Secular Forum will analyze these
topics and many more next week, after which Mohamed and I will alert you
to the prospects.
on a constant bearing decreasing range, and indeed there would seem to
be many such blips on the radar screen: global imbalances in trade,
finance and currencies; excessive private and sovereign debt levels;
growing disparities in wealth between the rich and the poor; aging
demographics threatening aging and younger generational priorities. Lots
of ships out there. Our upcoming Secular Forum will analyze these
topics and many more next week, after which Mohamed and I will alert you
to the prospects.
For now I would like to continue down the route of previous months’ Investment Outlooks
and discuss the immediate threat to investment portfolios represented
by low policy rates (fed funds in the U.S.) and the increasing negative
real yields that they engender as inflation accelerates. I spoke last
month to the reality of investors being “skunked” and having their
pockets picked simply by receiving yields less than inflation, and
suggested that as a major reason why the PIMCO ship was carrying a
limited supply of Treasuries on board. Although we have warned for
several years of the deteriorating creditworthiness of America’s AAA
rating, our de minimis Treasury positions had less to do with much more
immediate issues than America’s balance sheet prospects. We are highly
sensitive to the pocket-picking policies that governments in general
deploy to right the ship.
and discuss the immediate threat to investment portfolios represented
by low policy rates (fed funds in the U.S.) and the increasing negative
real yields that they engender as inflation accelerates. I spoke last
month to the reality of investors being “skunked” and having their
pockets picked simply by receiving yields less than inflation, and
suggested that as a major reason why the PIMCO ship was carrying a
limited supply of Treasuries on board. Although we have warned for
several years of the deteriorating creditworthiness of America’s AAA
rating, our de minimis Treasury positions had less to do with much more
immediate issues than America’s balance sheet prospects. We are highly
sensitive to the pocket-picking policies that governments in general
deploy to right the ship.
Well, ahoy matey, as quick as you can shout “thar she blows,” an
academic working paper by Carmen Reinhart and M. Belen Sbrancia affirmed
the same thing but in much more grounded, well-ballasted research. The
paper, titled “The Liquidation of Government Debt,” contains a
historical analysis of how governments attempt to get out from under the
crushing burden of a debt crisis. For developed countries such as the
United Kingdom and the United States, the period beginning in the
mid-1940s (when depression and WWII sovereign debt loads were
oppressive) was used as a starting point for pocket picking, “skunking,”
or what they term “financial repression.” While the ancient Romans used
to shave metal coins in an attempt to monetize existing debts, our
evolving financial system has used more sophisticated techniques. With
inflation accelerating, due to WWII and post-war demands on commodities,
the Treasury capped long-term bond yields at 2½% and in so doing
ensured that its debt/GDP ratio would be reduced. If savers received an
average 2% on their Treasuries while the nominally based economy was
advancing at 5% or more annualized growth rates, then debt to GDP could
be lowered from its peak level of 116% to 112%, to 109%…etc. every 12
months. In fact, the authors found that “for the United States and the
United Kingdom, the annual liquidation of debt via negative real interest rates amounted
on average to 3 or 4% percent of GDP a year…which quickly accumulated
(without compounding) to a 30 to 40% of GDP debt reduction in the course
of a decade.” Even after interest rate “caps” were removed in
1951 via the Fed-Treasury Accord, extremely low/negative real interest
rate policies continued until the Volcker revolution in 1979. By
that time, U.S. (and U.K.) debt levels had been normalized, primarily
at the expense of savers who had been “repressed” (and depressed!) for
over three decades. At that historical turning point, government bonds
were labeled “certificates of confiscation.” Not only had savers
received Treasury bill rates that were negative for over 25% of the
nearly four decades, but they were holding long-term AAA rated bonds
trading at 30 to 40 cents on the dollar.
academic working paper by Carmen Reinhart and M. Belen Sbrancia affirmed
the same thing but in much more grounded, well-ballasted research. The
paper, titled “The Liquidation of Government Debt,” contains a
historical analysis of how governments attempt to get out from under the
crushing burden of a debt crisis. For developed countries such as the
United Kingdom and the United States, the period beginning in the
mid-1940s (when depression and WWII sovereign debt loads were
oppressive) was used as a starting point for pocket picking, “skunking,”
or what they term “financial repression.” While the ancient Romans used
to shave metal coins in an attempt to monetize existing debts, our
evolving financial system has used more sophisticated techniques. With
inflation accelerating, due to WWII and post-war demands on commodities,
the Treasury capped long-term bond yields at 2½% and in so doing
ensured that its debt/GDP ratio would be reduced. If savers received an
average 2% on their Treasuries while the nominally based economy was
advancing at 5% or more annualized growth rates, then debt to GDP could
be lowered from its peak level of 116% to 112%, to 109%…etc. every 12
months. In fact, the authors found that “for the United States and the
United Kingdom, the annual liquidation of debt via negative real interest rates amounted
on average to 3 or 4% percent of GDP a year…which quickly accumulated
(without compounding) to a 30 to 40% of GDP debt reduction in the course
of a decade.” Even after interest rate “caps” were removed in
1951 via the Fed-Treasury Accord, extremely low/negative real interest
rate policies continued until the Volcker revolution in 1979. By
that time, U.S. (and U.K.) debt levels had been normalized, primarily
at the expense of savers who had been “repressed” (and depressed!) for
over three decades. At that historical turning point, government bonds
were labeled “certificates of confiscation.” Not only had savers
received Treasury bill rates that were negative for over 25% of the
nearly four decades, but they were holding long-term AAA rated bonds
trading at 30 to 40 cents on the dollar.
The point of the Reinhart paper was not to state the obvious – that inflation is bad for bonds. Their
financial repressionary thesis points out that bond prices don’t
necessarily have to go down for savers to get skunked during a process
of “debt liquidation.” The argument over whether the end of QEII on June
30 will result in higher yields and lower Treasury bond prices is, in a
sense, a secondary one. Even if 10-year Treasuries stay where they are
at 3.30%, and fed funds close to 0%, savers and financial intermediaries
are being shortchanged by both of these yields and everything in
between. Today’s rates resemble the interest rate caps prior to
the 1951 Accord. Either through QEI, QEII or the Fed’s “extended period
of time” language reinforced at Chairman Bernanke’s recent press
conference, U.S. Treasuries and the bond market in general are being
“repressed,” “capped” or simply overvalued compared to the prior 30
years. Bond investors forced to invest in dollar government bonds either
through indexation, convention, regulatory guidelines or simply falling
asleep at the helm are being shortchanged by 1 to 2% annually compared
to historical norms and in many cases receive negative real yields, as
shown in Chart 1. If Reinhart’s history is any guide, an investor should
expect these overvaluations to be with us for years if not decades.
While that still leaves open the question of price behavior following
QEII, there should be little doubt that simply holding Treasuries at
these yield levels for an extended period of time represents an
abdication of responsibility.
financial repressionary thesis points out that bond prices don’t
necessarily have to go down for savers to get skunked during a process
of “debt liquidation.” The argument over whether the end of QEII on June
30 will result in higher yields and lower Treasury bond prices is, in a
sense, a secondary one. Even if 10-year Treasuries stay where they are
at 3.30%, and fed funds close to 0%, savers and financial intermediaries
are being shortchanged by both of these yields and everything in
between. Today’s rates resemble the interest rate caps prior to
the 1951 Accord. Either through QEI, QEII or the Fed’s “extended period
of time” language reinforced at Chairman Bernanke’s recent press
conference, U.S. Treasuries and the bond market in general are being
“repressed,” “capped” or simply overvalued compared to the prior 30
years. Bond investors forced to invest in dollar government bonds either
through indexation, convention, regulatory guidelines or simply falling
asleep at the helm are being shortchanged by 1 to 2% annually compared
to historical norms and in many cases receive negative real yields, as
shown in Chart 1. If Reinhart’s history is any guide, an investor should
expect these overvaluations to be with us for years if not decades.
While that still leaves open the question of price behavior following
QEII, there should be little doubt that simply holding Treasuries at
these yield levels for an extended period of time represents an
abdication of responsibility.
Bond – and stock – investors have been sailing on the “Good Ship
Lollipop” for over 30 years following the Volcker Revolution and the
return of high real interest rates to investment markets. Now, however,
with governments attempting to impose financial repression, bond
investors should revolt. Their ship should more likely be christened the
“USS Caine” in memory of a silver screen mutiny that, while traumatic,
eventually returned all sailors safely to port. Many of these countries have more
pristine balance sheets and higher real interest rates than those
currently being imposed in some developed markets subject to current and
future “repression.” If AAA quality is your requirement, then Canadian
or Australian bonds may also fit your horizon. Join us, along with
Carmen Reinhart, in shouting “constant bearing/decreasing range!” The
Treasury market is on a collision course with financial repression and
it is time to adjust your rudder to starboard to get home safely.
Lollipop” for over 30 years following the Volcker Revolution and the
return of high real interest rates to investment markets. Now, however,
with governments attempting to impose financial repression, bond
investors should revolt. Their ship should more likely be christened the
“USS Caine” in memory of a silver screen mutiny that, while traumatic,
eventually returned all sailors safely to port. Many of these countries have more
pristine balance sheets and higher real interest rates than those
currently being imposed in some developed markets subject to current and
future “repression.” If AAA quality is your requirement, then Canadian
or Australian bonds may also fit your horizon. Join us, along with
Carmen Reinhart, in shouting “constant bearing/decreasing range!” The
Treasury market is on a collision course with financial repression and
it is time to adjust your rudder to starboard to get home safely.
»
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Bill Gross is America's new enemy #1 now that Osama has been taken out
-Barack H. Obama
I hope he is allergic to hot tubs.
Enemy of this government, but friend of today's US children....
Bill Gross is a unique form of domestic terrorist(TM)
He is one of the great snowjob artists. Where was his sense of community as he bought MBS while helping design the bailout involving government purchases of MBS? I think he is correct, but not to be fully trusted.
What's Pimco to do.
Soooo Buy Gold? Buy another country? Buy an army?
What's left?
white star line brand lifeboats.
Did his tanker analogy include the part about pirates boarding and taking over the tanker?
we be comin fer yer 20 yarr bonds!
Right full rudder!
buy foreign bonds that have a decent yield and balance sheet such as australia
Buy CEF then dissolve the trust; instant 6 billion dollar precious metal position put on at a 3% discount to spot
He should be careful and watch for Navy Seals in helicopters hovering nearby.
Yeah. Because then they'll crash and shoot him in the face then quickly toss him into the ocean, mob style.
I'm very sure they stuffed him in a holed Tomahawk Missile crate before throwing him overboard. The last thing they want is his body washing up on a beach somewhere.
Bingo, large enough holes for the crabs to feast..
The drama that is The Bernank/Jeetner vs The Bill Gross is stupendous theater.
In other news, hey look, everyone! It's a Hoenig, and it sounds all Hawkish (and so concerned asset bubbles, inflation and the credibility of the Fed that its asking for support from community bank officials on the PR front):
- 05-03 09:20: Fed's Hoenig says you cannot have extreme accommodation without inflationary pressure
But my absolute FAVORITE HOENIG-ISM OF THE DAY *drum roll*:Fed's Hoenig says he says and does whatever Ben tells him to.
Bill Gross will not be getting a WH Christmas card this year, or a Happy Holidays from the FED. Perhaps an 18 foot block wall around the house topped with barbed wire is in order? Are "financial terrorists" subject to rendition?
Bill Gross will probably get a throwing knife in the face and dumped in the sea.
PIMCO gets a visit from Seal Team Six?
Moe Green Specials for everyone?
Deflation is still the primary trend, despite the serious inflationary elements of energy and food. Classic biflation that will eventually make an equity correction and UST 10yr will rally back to 2%. Gross and PIMCO will be back in the market big time before then. I think he's just gonna wait until debt ceiling is raised.
Then he will pile back in like a bandit in a financial junkyard.
The weasel knows how to make money, the new fashioned way.
Treasury puts = hyperinflation insurance. Gross is probably long so he gets those dollars and outruns you, dear campers. Good luck outrunning the bear.
If Gross doesn't like Treasuries, how can anybody?
required regulatory capital for FIs
Sounds like Gross is changing his story. Now he's admitting the possibility that nominal rates could stay low.....for a long time. So far.....over the last month since he sounded his alarm.....Bill Gross has been DEAD WRONG about Treasuries, which have done nothing but CLIMB in price.
Also, Gross is very inconsistent. Two years ago, when it suited hime just fine, he yapped about "shaking hands with the government" and "getting under the government's umbrella". So it was OK then to join forces with the evil manipulator back then, but today it's not!?
Gross's main (only?) function at Pimpco is to throw head fakes for the trading desk. A few months from now we'll all discover that his firm has a megaposition in zero-coupon 30-yrs.
An interesting historical context for yields. Desperate times call for desperate measures -- how long before Bernanke punishes hoarders (aka savers) with actual negative rates on on their accounts? Turn that money over in the economy, or turn it over to Uncle Sam...
I thought we allready have this. 1.00 % with savings and 8-10 % inflation seem negative to me.
I'm talking about an actual levy on asset accounts, a "wealth tax" that leaves no doubt. Of course it would be billed as temporary measure...
got it
If you have cash do what the greeks did, get it out of the country while you can.
Gross is just having trouble steering any yield into the trillion plus AUM...he wants easy street back
Bill does too much book talking to take him seriously. If he has finally had an epiphany, then good, but I still find it hard to believe he lost faith in treasuries.
China has lost faith in treasuries. What does anything else matter? If you have no buyers of treasuries except the treasury itself, its all a fools argument.
yes, china is the tell.
I love the chicken littles worried abut gold and silver, as if china is TRADING this shit instead of BUYING EVERY SPECK OF IT ON THE PLANET.
Not trying to hijack the thread but figured this deserves a mention.
Online database of SLV inventory is here. This is a step further than previous projects on the subject. It will be added to as more data is mined etc.
screwtapefiles.blogspot.com
ZIRP + QE = negative real yields
click... click... the fed is out of bullets and something's gotta give
The real story- China dumps US Treasuries hand over fist.
All else is 1 hand clapping.
Bill likes to shoot his mouth off. I'm still waiting for the nitroglycerine that UK Gilts are balanced on to go off. Well Bill? Oh , you mean to say you got long Gilts into that tiny wobble your comments caused? Gotchya.
Gross is a snake. He wants to scare treasury yields higher and then pounce on the fear. Soon he'll be on CNBS bragging about how much he made going long treasuries right before the big rally.
Print and hoard. Th eeconomy needs money, so we print it. If the economy gets money, we will have inflation worse than now, so we hoard it.
Where was Gross when Canadian and Aussie dollar was 40% less in 08,09 and stocks tanked. He was sucking Fed and he should have been bailing then buying EM. I would never have him manage my $$.
Aww. Someone's still feeling a little butt-hurt.
Edit: That said, with the 10 year at 326, I think its time to start heading for the other side of the boat.
He is the king for sure.
The king of failed trades.
There are two lessons here about the state of affairs:
1- In this Orwellian nightmare of a market, you probably won't be able to profit from being right. Precisely why ZH is probably not the best source of advice for those looking for shorter term profits. Too much truthiness, not enough "reality."
2- No matter how right douchebags are, they are still douchebags.
What would treasury yields be if not for Bernanke buying the hell out of them?
Hmmm. I'm wondering what yields will be when Bennie and the inkjets meet PBOC and their 3 trillion supply (Not to mention the BOJ, etc).
or put another way, if the government had to fund its shortfall by selling paper, and it wasn't buying its own, where would rates land? the Fed may well try incrementally raising rates to fill that demand, or jawboning if you will. the one thing Bernanke has taken for granted and he shouldn't is that wage pressures will remain nonexistant. with a declining or shrinking workforce, wage increases have the potential to leverage inflation on the rest of us. and one senses we are close to that tipping point where US workers say 'no mas' we want our COLAs and we want them now.
Yep. The attitude of "don't worry about the mule, just load the wagon" eventually results in the mule laying down.
Spot on! I'm caught in the middle with no place to go. The Fed is killing me. I'm treading water with my savings and the Fed is printing fiat.
Sounds like he is actually looking out for his investors. Goldman should take some classes from this guy in ethics. They're probably telling him "what the fuck do you care, you're making millions. Just keep your mouth shut and keep raking in the dough."
in a more perfect world Gross would be Treasury Secretary or Fed chief, and may be someday.
The equation is simple, the gap between what the govt collects in taxes and what it spends is about $1.5T annualy (rough numbers, at the end of 2010). In the past year the Treasury issued about $1.5T in new debt to fund that gap. The public and foreigners bought about half and the Fed bought about half of the $1.5T.
When the Fed steps away and buys no more after June (as Ben has stated), who will buy that other half? For many years to come, each year we still need about $1.5T more than we collect. I find it tough to beleive the public will DOUBLE their US Govt debt purchases for the next 1,3,5 years and accept the same interst rates as current.
Oligarchs feel the heat as thieves fall out...Buffet already kicked his side-kick in the ass...lots of false flags and real shenanigans; as the finance world does shake rattle n roll...run, baby run...will be the theme on Main Street when that spiral unfolds..
I dont need a crazy cowboy messing up my allocations. There is no alpha compared to an appropriate international bond index fund with equivalent risk and duration. He deceives people claiming 85 percentile returns. Those are not stratified, risk and maturity adjusted.
All he does is unpredictably change portfolio characteristics and make it difficult for people who care about such things to maintain appropriate volatility and return parameters. If I wanted cash in my portfolio i could do it cheaper than pimps co.
I just want to point out that Bill was a cheerleader for TARP, and as I can remember, for the initial QE programs as well
Remains to be seen if FED and Treasury (with friendly ECB & CBs) can manipulate complete bond market via orchestrated: puts , "new products", derivatives, Markit, ratings etc ... AND KEEP US bond YIELDS ARTIFICIALLY LOW
Adjust the rudder?... In other words... Sell !!!. Bill needs mass Treasury selling to drive down the cost of (make money on) PIMCOs Treasury crash bet. Yes,... Treasuries will eventually crash, but in the mean time Bill is losing money on his shorts, options, derivatives and whatever other bets he has placed against Treasuries. So until we all dump our Treasury holdings in a crazed Bill Gross inspired self-fulfilling prophecy, expect more Treasury "the end is near" stories from Bill. Of course Bill will ultimately be right, he's just losing money while he waits. Sell damn you... Sell !!!!.
Great piece, put another way he is saying this, while everyone worries about some catastrophic, black swan event, destroying the markets, and they spend their time worrying about what happens when the wheels come off, the Titanic hits the iceberg, no one worries about what happens when the state of things continues unabated to its logical conclusion. we elected a president on the promise of change, because we knew, that things could not continue as they had been, and the poor sop did just that. the enemy is status quo economic policy, and politics, but no one has the courage to change course. what Gross is saying now, is hold on, we're going even farther, but like ships in the night economies are much bigger, more like two tectonic plates off the coast of Japan. it's going to shake, and are we ready?
Tyler,
Looks like you ruffled some Gross's feathers with the piece on Geithner no longer turning the other cheek.
Buffett and Sokol, Gross and Geithner, etc. etc.
He's a Captain Ahab rattling his harpoon, railing against the Moby Dick of low bond rates while screaming, "From hell's heart I stab at thee; for hate's sake I spit my last breath at thee."
Anyone who sticks to a story long enough will eventually be correct. It’s only those who change their story every three months that risk being wrong all the time.
I actually think Gross is right on this one. But, I also think he’s throwing his weight around and being a market bully, which is the only significant edge he has over his competition, and that’s pretty lame.
Typical US Navy dumb shits!
You had to wake the captain to change course? Were you not in charge of the navigation of the vessel from 12am to 4am? You couldn't change course?
And now you are in charge of how much money?
POSH = Port Out, Starboard Home.
This term is from the pre-air conditioned days when European cruise ship passengers booked their cabins on the side of the ship accordingly, to avoid the heat of the sun in the afternoons on long cruises to the Mediterranean. For the well heeled, it was always "Port Out" and upon turning around it would then be "Starboard Home", hence POSH.
Yes, Bill Gross and the bankers will no doubt be traveling POSH at everyone else's expense if he's advocating Starboard Home. I'm a little relieved he's not advocating or talking about the number of lifeboats.
It seems that Geithner's warning of a 3% fee to PIMCO's bottom line is making Bill Gross tone it down a bit. That's OK, we can all still read between the lines. Gross still uses the word repression although he's given the Fed slight opening they wanted.
Bill Gross and PIMCO should know they are always welcome to be a part of the scheme, but never a real part of the "family," if they're not one of God's chosen banks. That's why Geithner (the "cleaner") sent a horse's head to Gross as warning, lest he forget.
Who cares what Bill Gross thinks...his way isn't Glass-Steagall, thus nowhere does he provide a solution, nor an accurate assessment of things. He just wants the monetarism HIS way, not their way. Guess what Bill, no way of monetarism will work.
Now if only there was one law we could pass that could wipe out all the fraud by declaring it illegitimate. Oh yes, and we need not even construct it, we had it and its standards in place once.
One law to rule them all (economically)
Glass-Steagall (not just a law, or a firewall, but also a standard for what is and isn't legitimate within a system)
So guess where all this fraudulent debt sits. Where does Ron Paul say it sits? Where does Barack Obama says it sits? Where did Bush? Boehner? Clinton? Pelosi? Reid?
That's right....they ALL say it sits legitimately. Time to get rid of all the douchebags that support the paying off of fraudulent debt, and passing the law that will rid
It's not about left or right, or nanny state, or what percentage pays taxes....those are all false debates, that are effects of the system, not a cause of future trouble.
It's not less than half the people pay taxes, and thus we are screwed and giving too much away in entitlements. (that is the thinking of a Grade AAA dipshit)
It's that the monetary system, corrupt as all hell, destroy the conditions for poeple to work, so that less than half pay taxes, and more need to take handouts. It's an effect, not a cause.
Want to know a real cause-effect....how about two?
1. Fraudulent debt = idiots wanting to cut or print (2 dipshit ways...or a 3rd a combo of both)
2. Reenact Glass-Steagall = all the fraud pervasive in the system....the fake derivatives, the RMBS/CMBS, the co-mingling of capital.....etc, is wiped away....as if it never even existed....because only through fraud it did.....which means there is no debt crisis, there is no reason to not do anything, and there is no reason cut...nor print for fraud.
Bill Gross is on the wrong side of this, as are many people that think they've found the truth this time. Nope, you've been suckered again. Only Glass-Steagall will get rid of the exact crux of the issue, without a new dark age. Any other way the reset button is pressed, it will lead to a new dark age.
Go after the REAL problem, the validity of the debts. Then you'd find out the debt we have, we don't.
But you'll never see an idiot like Walker/Christie/Obama/Reid/Pelosi/Boehner/Romney/Ron and Rand Paul/etc actually get to the real issue. How valid are the debts themselves? Then ask the much important question. If it isn't valid...why are we paying? Much more pressing.....why are we paying that....and cutting this? Why are we printing for that.....and not building this?
Bill Gross and all other forms of monetary schools are retarded.
Pass Glass-Steagall and Bill Gross and the rest of the dipshits can blow it out their idiot asses. They never got it right during the bull, they still haven't gotten right during the bear. It was a fraudulent setup that made them money, and it is the same fraudulent nature that will take it away. The dumbest guys in the room are named Obama/Paul/Gross/Bernanke/Reid/Pelosi/Boehner/Buffett/Walker/Christie/etc
None of them understand shit. Just their own interpertation of this fraud (somehow not being fraud) through their own form of monetarism's rose colored glasses.
Fraud on the way up and down. But none of them are pointing to that factoid. 1990's will never happen again, get over it. The Reagan revolution, was completely wrong and anti-american. Hope and change? Never gonna get it. Just more bankster bullshit.
Only Glass-Steagall will set us free. It really is that simple. Is it because the simplicity of one law needing to be passed, that was once the law of the land, make it so difficult to see such a simple solution. Grab the fucking wheel Gross. My fellow American's, pass Glass-Steagall.
Listening to all the keynes/austrian fucktards clueless in everything is just waking up the half naked asleep captain. We've already done this. Now we need to realize we need to grab the fucking wheel and pass Glass-Steagall.