Exclusive: Bill Gross Dumps All Treasuries, Brings Total "Government Related" Holdings To Zero, Flees To Cash - No QE3?

Tyler Durden's picture

And many thought Bill Gross was only posturing when he said he is getting the hell out of dodge. Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since. And while we expected that the spike in MBS holdings (at times on margin) was indicative of an expectation that QE3 would monetize mortgage backed securities, the ongoing decline in that asset class now leads us to believe that Bill Gross is now convinced there will be no QE3 at all, at least based on his just putting his money where his monthly pen is! And if Bill Gross, the most connected person to the upcoming actions by the Fed, believes there is no more quantitative easing, it is really time to get the hell out of dodge in all security classes - bonds, and most certainly, equities.

Note the plunge in Treasury holdings in the chart below (blue line), offset by the surge in cash (dotted pink line). Time to panic.

And when it comes to duration adjusted holdings, something wierd is going on: PIMCO has increased its holdings of securities with a 0-1 duration to 14%, quite possibly the highest ever, and certainly the most to where our records go back. The effective duration on the entire portfolio dropped to 3.89, the lowest since December 2008.



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gordengeko's picture

This is going to end well.

NoBull1994's picture

Well, PIMCO is raising an equity fund, so the capital is going somewhere....

SheepDog-One's picture

Pimco going all in on the top of the equity bubble? Good luck to em!

66Sexy's picture

QE 3 is now in question. i give it 50/50 chance now.. and any selloff will happen without any annoucement, because the crooks at the top know before we do.

But.. what if there is QE3? then the little guy gets screwed again, missing out on all the stacked up buying before the announcement; before we even get wind the DOW will be at 14,000.

Hand of blackjack bitchez...

fuck it: just go to vegas and get free drinks.

At this point, I am quite bullish on cocain, hookers, and the entire self inebriation sector.

Al89's picture

The market surged on the Jackson's hole speech. It did not surge prior to the speech, although insiders may have been buying before Bernanke signalled QE2. Any little guy could have gotten involved in the surge. 

66Sexy's picture

you really think that ben wont get together with Goldie Sachs and JP Morgue brass over Opus X's and 20 year and mention, "oh, by the way...the chair is against the wall"

Trust me, the announcement (if any) will be made when the little sheeple can't trade. And the DOW will open up (or down) so far that it will be unattractive to buy or our portfolio's will be collapsed.

Temporalist's picture

The Bernank doesn't smoke cigars and drink scotch it snorts shredded FRNs and drinks the blood of unborn children.

Problem Is's picture

The Bernank is simply a puppet, a useful idiot, a stooge, who is the front man for those who snort shredded FRNs and drink the blood of unborn children... e.g. the Wall Street TBTF bankster class...

That is why he mutters, stutters and his lip quivers...

Batting Order on Bastille Day
I suggest Jamie, Lloyd, Rubinite, and Uncle Warren lead off ...

Jeethner, Obummer and the Bernank are just the Bat Boys...

JW n FL's picture

Highly compensated bat boys... but bat boys none the less.

dogbreath's picture

there's an image for our william to work with. 

gabeh73's picture

I agree 100%. "just trust us to manipulate the markets in a way that is good for you because we love you" is the monetary policy in this country(and all the central bank controlled countries). If you think that changes should be made to fix this then you are officially "an insane uneducated wingnut".

Head for the Hills's picture

But are they not our benevolent shepherds. 

Always watching over the flock.   Surely they

fleece us from time to time, but how could anyone

think they could slaughter us, their fluffy white

faithful pets.

6 String's picture

I give it 90-10 odds there will be no QE3, initially. It will be a repeat of 2010 where QE ended, for awhile, then all started to unravel....then, QE II.

It will be the same, worse this time...because the end game gets closer, and ramped up prices will have even further to fall....plus, T-bonds go bidless, so QE3 will be imminement. Cash will be fine during this transition....which is where Bill Gross is going. Right when you get then next jackson hole moment, go very long PM's, Oil, etc.

Bernak is trying to save face with "self-sustaining" bull-shit statements about the economy. It will fall apart but he'll be able to blame congress and the deficts and bidless bonds and try to save some dignitiy in the History books for the Fed.

But anyone following knows the Fed will ultimately get what they deserve.

asdasmos's picture

I thought the same, they will not do it initially, letting things drop and then when they do announce it, there will not be as much backlash.

ms1408's picture

He could be selling bonds because he expects inflation to accelerate and that without China's backing the QE3 bond-buying play is unfounded. Of course you have to sell bonds for cash - who says he isn't going to use that cash to buy other assets?

Without QE3, the Fed's interests would have to end their military expeditions immediately, and banks with leverage ratios of as high as 20:1 (some of whom are direct shareholders in the Fed) will collapse.

Agent P's picture

QE3 won't happen, and military expeditions will keep on a rollin'.  Why, because higher oil prices will require it.

Think about it.  I'm not a conspiracy guy, but am I the only one who sees the NA/ME situation as the perfect out if the Fed/WS/Gov think a second collapse is inevitable?  Oil will be the fall guy.

/tin foil

Ironmaan's picture

QE3 will happen. There will be a delay just after 2 ends, but when the bottom begins to fall out, they will come rushing back in with 3.


NotApplicable's picture

They've got to let a bunch of stuff break first in order to create the media pundit led mandate for QEIII.

Like say, a few blown-up munis, for instance.

Problem Is's picture

ZHers Vote:

  • [ X ] Ironmaan: QE3 will happen.
  • [    ]  AgentP: QE3 won't happen.

I'm with Ironmaan... QE3 is coming right up, announced or unannounced by the back door if there is too much political resistance for more Bankster TBTF welfare...

trav7777's picture

where's the bid for USTs gonna come from w/o QE?

Agent P's picture

If the Fed stops printing and there is serious geopolitical turmoil, I think there will plenty of bidders.

trav7777's picture

bidding up the bonds of an insolvent state...not a great plan

equity_momo's picture

Since when in the last 15 years has the critical mass of money managers had a great plan? Mutual funds are run by bandits to fleece idiots. They make a fee and justify their career by chasing benchmarks.

Agent P's picture

Trust me, I think our shit stinks plenty...just not as bad as everyone else's.  In previous flight to quality moves, the market has agreed with me.  Maybe it will be different in the future...maybe not.

Geoff-UK's picture

Not enough physical gold to handle the demand once the proles figure out what's what.


PLENTY of idiots will buy Treasuries to get out of everything else.  Until some magical moment when nobody wants anything but items of intrinsic value.  Food, silver, ammo, gold, the Vanessa Williams issue of Penthouse kept in a pristine plastic envelope...

MrSteve's picture

In this game of Global Jeopardy, I'll take the Bank of England with a Bermuda twist for $50 billion. We got presses, they got presses, just to keep the ponzi even-steven.

mkkby's picture

Why Trav?  Think outside the box.  Pimco wrongly assumed QE2 would be bond bullish.  They were wrong and they lost money on the bet.

So now he's sold out at a loss.  It could mean he thinks QE3 WILL START ON SCHEDULE... which will continue to ramp up inflation expectations, and continue the bond selloff.

The crowd thinks no more QE means a bond selloff, i.e no bids until much lower prices.  Maybe.  Maybe it takes the pressure off inflation and restores confidence, which makes it safe to come back to bonds... which certainly jives with the last 6 months trade.  That would be bond bullish and commodity/PM bearish.  (Of course the math of compount interest still goes on so it would be wise to BTFD on commodities/PM's)

forexskin's picture

started a rush out, maybe a stampede - where did that happen before... ? oh yea, a redshield dropping british bonds like waterloo was lost. remember the outcome of that? QE3 and a bond reversal is where gross picks up the debt for pennies on the pound, with the expectation that nobody will see the coming ramp after this bloodbath he's precipitating.


or not...

Geoff-UK's picture

Well-hedged, Mister Skin.

ms1408's picture

Well we all know who the interests of the Fed are - its shareholders and their arm of power, the government. Here some examples of the leverage ratios among the Fed's shareholders:

JP Morgan : 12.6

Goldman : 12.9

Citi : 11.7

That means these banks will be wiped out if their investments depreciate by values less than 10% - you really think they're going to willingly stop QE?

Plus I fail to see how the US government can continue to finance military operations all over the world without debt monetization. Plus the absence of the wealth effect will could easily cause sudden revolt.

Agent P's picture

Two points:

1) I think the banks you mention are able to position their books to profit from any scenario if they are either smart enough or informed in advance (take your pick)

2) From what portion of society do you think the revolt will come?  Does this portion of society benefit more from the wealth effect, or suffer more from the inflationary aspects of QE?

I've long been in the camp that believes the Government's game plan for getting out of the debt pickle is inflation.  What I'm saying above is that IF (big if) the Fed/Gov/WS believe there is a coming collapse regardless of QE efforts, they now have a fall guy in NA/ME turmoil and higher oil prices.  Conveniently, this also justifies additional military operations in the region. 

ms1408's picture

You could be right but I think they would find it very difficult to avoid counter-party risk in that environmnet - I don't believe the system is capable of absorbing a deflationary collapse. The absence of debt monetization could cause the control-grid to completely disintegrate within a very short period of time. I agree that revolt will arise in either case but my point is that the wealth effect helps to keep people docile as the media can points to rising stock prices and propells the myth of recovery. However I would argue that in either case precious metals are the safe haven since they're a hedge against counter-party risk as well as inflation. Your bank is probably going to default in the case of deflation so unless you fill wheel-barrows with dollars, only hard assets are a safe-haven.

equity_momo's picture

Those leverage ratios are grossly understated. 

snowball777's picture

Could be "going in" massively short.

halcyon's picture

Big PIMCO funds cannot afford to go "massively short".

They can hedge, but going massively short is a gamble that may run out of liquidity before things unfold and you should know it.



Mr Lennon Hendrix's picture

Gross could hand out dollars like Robin Hood did gold.  Helicopter drops over Times Square?  Shit, he could fly to Tahrir square and do some real good.  In the US the 20% unemployed might get a kick out of that, and it would steal any thunder Bernanke was considering.  Get to the choppa?

uhb's picture

not if its a long-short equity hedge fund.

Ropingdown's picture

The cash has to go somewhere, and that somewhere almost has to be fully-hedged equity and futures positions.  Certainly Gross can't risk parking it in banks.  He'll be selling off the losing side of those hedges long before I first hear the incoming shells screaming down on my position.  It seems natural to retreat to the equities markets from bonds now, given flexible hedging in the equities world, and sovereign bond risk in every bond market that counts.  Can't trust CDS counter-parties with that kind of money and coming volatility, can you?  Criticism welcomed.

Onlygold1's picture

Ah, the gross 1, i'd guess he's had a heart to heart talk with blythe and is buying Silver! we'll be the last one's to know what he's doing with all that cashola-

GetZeeGold's picture


Remain calm.....all is well.

Divided States of America's picture

If he sold all of it, then whose the dumbass on the other side of that trade??

I think I know who.

MarketTruth's picture

Eaxactly, it is where everyone shoots out their (US Debt) load...

Ben Shalom Bukkake

mrgneiss's picture

Maybe they decided not to bring Bill into the loop this time, hadn't he leaked certain info early over the past year that he seemed to have insider knowledge of, as mentioned before by TD?



Zero Govt's picture

Oh cum, cum ...surely Ben doesn't swallow it all ?!!!