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Should We Be Alarmed That The Biggest Bond Fund In The World Has Dumped All Of Their U.S. Treasury Bonds?
Michael Snyder talks about the world's addiction to debt and where that is leading us. He asks: "Should We Be Alarmed That The Biggest Bond Fund In The World Has Dumped All Of Their U.S. Treasury Bonds?"
Another excellent financial writer, Mish, thinks fading Bill Gross's move makes some sense, though he also stated, "The alleged 'relative value' of emerging markets may turn out to be nothing but an 'absolute value' trap. Admittedly there is not much to like on a long-term basis about US treasuries either.
"Should treasuries continue to sell off, it may very well be the case there are no hiding places at all, except for the universally despised US dollar." (Pimco Dumps All Remaining Treasuries in Total Return Fund; Six Reasons to Fade Bill Gross)
What do you think? - Ilene
Should We Be Alarmed That The Biggest Bond Fund In The World Has Dumped All Of Their U.S. Treasury Bonds?
Courtesy of Michael Snyder of Economic Collapse
Bill Gross, the manager of the biggest bond fund in the world, has forgotten more about bonds than most of us will ever learn. That is why the big move that PIMCO has just made is so unsettling. At one time PIMCO held more U.S. government debt than any other bond fund on the globe, but now news has come out that they have gotten rid of all their U.S. government-related securities.
So should we be alarmed? For months, Gross has been warning that the bull market in bonds is coming to an end, and now it looks like he is putting his words into action. Gross has often publicly decried the rampant government spending that has been going on over the last several years, and apparently he has seen enough. He is taking his ball and he is going home. This really is a stunning move by PIMCO. Gross must really believe that something fundamental has shifted. Gross didn't get to where he is today by being stupid. But so far world financial markets are taking this news in stride. Nobody seems all that alarmed that the largest bond fund in the world has dumped all of their U.S. Treasuries. But with world financial markets in such a state of chaos right now, shouldn't we all take note when one of the biggest players in the game makes such a bold move?
Gross believes that interest rates on U.S. Treasuries are way too low right now and that they will start going up when the Federal Reserve ends the current round of quantitative easing in June. Gross has indicated that if interest rates on U.S. Treasuries go up high enough, PIMCO might get back in.
But if interest rates do start going up that is going to make servicing the monolithic U.S. national debt much more expensive, and that would not be good news for U.S. government finances.
But would the Federal Reserve really allow interest rates on U.S. Treasuries to go up substantially? Wouldn't they just step in at some point and start buying U.S. government debt again?
Probably.
But the truth is that the Ponzi Scheme of the U.S. Treasury issuing bonds and the Federal Reserve buying them up cannot last forever as Gross noted in his March newsletter....
"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."
Gross also noted in his newsletter that the Federal Reserve is currently buying up about 70 percent of all new U.S. government debt.
So what is going to happen when that stops?
Nobody knows for certain, but it sure is going to be interesting to watch.
The market for U.S. Treasuries has not been working "normally" for quite some time now, and there is some legitimate doubt as to whether it will ever fully get back to "normal" again.
Meanwhile, the sovereign debt crisis in Europe continues to get even worse.
The yield on 10-year Portuguese bonds is now above 7 percent, the yield on 10-year Irish bonds is now above 9 percent and the yield on 10-year Greek bonds is now above 12 percent.
Most people expect European leaders to soon come to an agreement to add billions more to existing bailout funds, but there is no guarantee that is actually going to happen.
In fact, the Germans are making waves by insisting that the financially troubled nations in the EU must be willing to agree to limits on their future budget deficits. A recent article on CNBC described the situation this way....
Before the Germans will agree to pump in extra cash from their taxpayers, backed by the French, they want each leader to agree to legislation at home that will limit the size of their future national deficits. The Greeks are already refusing point blank. Things may boil to the surface at an extraordinary summit on Friday.
So what if an agreement can't be reached?
Could the dominoes in Europe start to fall?
Very few people actually want to see a wave of sovereign defaults in Europe, but the current situation cannot go on forever. At some point the Germans are going to get sick and tired of bailing out other members of the EU.
The global addiction to debt is about to start having some very serious consequences.
For decades, most of the governments of the industrialized world have been running up debt as if it would never come back to haunt them. Now the world is absolutely covered in red ink and everyone is looking for a way to solve the problem.
But there is not going to be a debt jubilee to come along and save everyone. This debt bubble is either going to keep expanding or it is going to burst.
At one point, at least some of the debt-ridden nations will try to inflate their way out of debt by recklessly printing money. To a certain extent that has already been going on. But it will not work. It will only cause a whole lot of inflation.
This is just more evidence that any economic system based on debt is destined to fall. When we allowed a private central bank to start issuing debt-based currency in this country back in 1913 we set ourselves up to fail. As I have written about previously, the Federal Reserve should never have been allowed to come into existence, and it should have been shut down by Congress long before now.
But now the United States is caught in the same debt trap that most of the other nations around the world are caught in. The global addiction to debt is going to have some very, very serious consequences. Instead of moving into a great time of peace and prosperity, everything is about to come falling apart.
Things could have been different. Things did not have to turn out this way. But here we are on the edge of one of the biggest financial disasters in human history and most Americans still don't understand what is happening.
So what do you all think about all of this? Please feel free to leave a comment with your opinion below....
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Intimacy: Conditioning the Proton
The universe is not going to sacrifice a solar system to accommodate a human virus driven by consumption. Those asteroids feed the sun, which is a variable black hole.
So, the feds “created” $250 billion in February, which they are willing to admit. Between all corporate units in the nexus – private, public, nonprofit, and church, they are going to add $10 trillion NPV in phantom computer money this year to pretend that the American enterprise system remains viable, on the assumption of continued viral consumption demographics.
The adaptive capability of children determines confidence in the future, the NPV multiplier of present income that values wealth and connects the human circuit to the environmental circuit. With no effective examples of change, the reptiles simply short circuit into replication.
A 5-yr-old can see the difference between what they say and what they do, but they can’t, because they can only act impulsively within the groupthink track, with no connection to higher brain functions. They read books that are compilations of books, which are compilations of groupthink, the black hole.
The economic profit-makers are not going backwards; they never do. To tow the legacy system forward, they must mate, become quantumly entangled, with the external proton cleats. The formerly neutral middle class capacitor / substrate is removed and the electron pulls the proton through the looking glass from different tracks, until the proton can act as an electron temporarily, and vice versa. As the example is followed, the energy of catalysis is reached and a new neutral capacitor crystal forms.
Generally, the American population is largely a bunch w****s, but which population isn’t. There is no point in arguing over the spilt milk; that behavior is a function of History. For the proton, love is simply a behavior that gets it from point A to point B, and point B becomes the next point A, in a circle. It has no idea why the circle grows (monogamy) or contracts (substitution).
The problem is that the proton seeks “attention” only from those in the inner core, which uses it to attract additional electrons and then throws it away, creating the efficient exploitation feedback loop, which was replicated from previous generations that knew no better themselves. No one is responsible; it just is, quantum physics.
The capacitor crystal set is neutral in conjunction with electron behavior and the dc tracks cannot know who the enterprise architects are, so, the instant voltage appears in the neutral line, there is trouble. Do not short across the delay mechanism and expect the economy to function. Attempting to fix symptoms in time is a waste; they are sunk costs. A change of heart is required, which requires a spiritual awakening.
It’s about breeding rights; it’s always about breeding rights, which balance group consumption with individual investment, resulting from contrived and real anxiety. Do you want nature doing the job or do want the religious fanatics doing the job? Do you want the $1 million/unit cost of masons, or do you want the $100k/unit cost of independent workers brought back into the system?
The job will cost $2 trillion and the dissolution of Family Law. Prove me wrong. The enterprise architects could care less who survives and who does not; there is no shortage of black holes. 2 + 2 = 4 is a probability distribution.
My opinion = my portfolio: short EURUSD, long VIX (VXZ), long silver.
timeframe?
Bill Gross is the Sam Zell of the bond market. I think his timing may not be perfect but close enough. I doubt that the USG can keep bond vigilantes at bay for much more than a few years. The only thing that may prop them up in the short-term are global asset deflationary pressures in stocks, RE and soveriegn debt. Maybe, just maybe, the USD will be perceived as a safe haven for a bit longer. That is, until its not!
'For months, Gross has been warning that the bull market in bonds is coming to an end'
For months, I have been warning of a USD rally.
http://stockmarket618.wordpress.com
Gross also noted in his newsletter that the Federal Reserve is currently buying up about 70 percent of all new U.S. government debt.
So what is going to happen when that stops?
It's not going to stop.
The plan is federal government keep spending more money, borrowing more money, pushing federal debt higher and higher, $50 trillion, $100 trillion, $200 trillion, etc.
Federal government's interest cost is essentially zero since Fed rebates interest back to the treasury.
The plan is to run the presses till the dollar is worthless.
The ultimate insider and one of the funds that govt. goes to when they need an auction to always sell.
What is the difference between a "debt bubble burst" and a "jubilee" other than that one scenario will result in a complete and uncontrollable chaos and the other at least offer some form of discipline and systemic order?
Interesting comments. Of course, if we have a serious Chinese wobble and the hot money leaves China but everyone else is struggling, where might it flee back to? Correct again. The US dollar and the US bond market. The airwaves are so full of disinformation that it's probably best to ignore everyone, except Faber and Shiff. And the charts. Trichet indicates that the ECB rates may be going up, Bernanke seems to indicate that US rates will continue to be low till inflation does a Vesuvius in his face, and the US dollar chart looks like its going up. Maybe the Big Two have set up the mother of all short covering rallies in the US dollar and US treasuries to prevent US rates going up any further. And don't forget that the Fed has changed its accounting rules so it can't go broke holding all that toxic manure. And if there really isn't enough oil in the world to accommodate the Chinese and everyone else's oil needs, then the system breaks down. Maybe the powers are bringing forward the inevitable crunch so that they've got control of it before the crunch happens. The current economic policies are so bizarre and mad that explanations range from the Fed is stupid, or just supplying its mates on Wall St with free money. I don't subscribe to the either of these explanations and prefer that it has all been engineered for some nefarious reason - get China and then get the rest of us. If you accept the above premise that oil is running out in the near future, and we will all suffer economic chaos and hardship as we shift lower and backwards, then maybe the bubbles and busts over the last 10 - 15 years make some sense, as the real powers attempt to take over behind the smoke screen of the shenanigans that that they have erected. We are all in the Matrix but just don't know it.
Pimco/China? Nah they are scared. Time to get busy!
I think you gotta lean in there with Bill. It wasn't something he talked over with his wife (if he has one...I couldnt listen to the guy talk for over 5 minutes) and went to work the next day and hit the sell button. There had to be a chorus of highly paid brains that talk about tranches and stuff in the meetings. Now compare that with the meeting Bernanke had. All the folks in his meeting room couldn't afford to buy lunch for the Pimco group. Bill is liquid and has choices to contemplate. We aren't liquid and we get to watch a guy experiment with our financial system. If that doesn't work out we will be asked along with those freeloading firemen and teachers to share the sacrifice.
Gundlach is taking the opposite side of this trade from Gross. The battle of the titans is on.
OK Ilene, how do I put this delicately? Mish is a fucking dunce.
Bill Gross has broken ranks with the fraud that is the US Treasury auctions. There is no demand for US debt. The TIC report reads like Alice in Wonderland, and anybody who digs into the data knows that beyond a shadow of a doubt. Gross identifies the Fed as being responsible for 70% of all Treasury purchases. That's him being diplomatic - they are 100% fraud.
Think about it. How can an entity that spends $1.80 for every dollar of income (taxes), with $1.5 Trillion that has to be rolled in 2011, and a $1.5+ Trillion budget deficit borrow at ultra-low interest rates? Such an entity isn't creditworthy at ANY interest rate.
....yet clowns like Mish believe demand for US debt is strong. Why? because he has the mental capacity of a six-year old. That's right, Mish, the tooth fairy buys our debt...
Read Gross's article. He just gave the Treaserve a negative tip. Then ask yourself, "Who wants US debt?"
There's only a handful of people in the world powerful enough to stand up against the Fed and make a clear statement that exposes them for the crooks they are. Don't misinterpret it.
As you say, the mistake made in 1913 has to be corrected. Then the debts have to be written off.
Henchmen are already installed, the joke is on those who think it can be corrected. Just ask Paul Wolfowitz at the world bank.
The deck is stacked against you and collusion is allowed, except for you - everyone at the table has 4 printed aces each, don't get excited betting your pair of 8's on a correction-erection.
The proper response is "Mission Accomplished."
So one of the biggest buyers is sold out? He has no more left to sell? Zero? So the only thing he could do next is buy?
The entire article manages to be; a.)irrelevant, and b.) ignorant at the same time; it's merely a call for the usual type of totally jerkwad comments that you can depend on in an internet blog.
LawsofPhysics,
If you have a Phd in Nitrogen fixation how come you don't know it is the Haber Bosch process?
Well, this is hopeless. But I'll try one more time. The Long Bond contract topped out with a beautiful double top formation, one in Sept. and one in Oct.; 2010; DURING QE2. The bonds have been going down ever since; His sale is an anouncement that inflation will continue. It is not a bet on QE3. Your signal here is to short the Long Bond Contract, without using too much margin, maintain the short position; roll it forward aas necessary, and collect lots and lots of money. This market has now made a mult-year high; last year, as I indicated; please look up the chart; and it will now go down for years. In plain English; the evidence is in; we know what will come along; we can profit from it if we wish.
By selling everything, Bill Gross is signalling that he thinks long term interest rates are at or near the bottom. If QE ends, that could certainly put upward pressure on rates. But even if QE continues, improving economic conditions could also put upward pressure on rates. And if continued QE stokes inflation, that would really send long term rates higher.
So one can come up with a number of arguments that interest rates are going up, regardless of what happens with QE3. Of course, Bill Gross can make mistakes just like the rest of us. But his opinions are worthy of consideration.
yeah, of course, none other than Grossteins can mingle with the hofjuden. I thought, for the longest, he was in, eating hofjuden ass, but I was wrong. He is out. Global war, to distract those who are dusting off the good old reliable vatican written script, cannot be far away to take the attention away from the serpents that got us in this debt ridden mess.
Gross has paid attention to the WI controversy, as well as the moves in other States. The writing is on the wall. No more goobermint bullshit will be tolerated.
Looks like a top call to me. Is he selling equities also?
Gross gets all the headlines, but there are other guys who manage just as much or more money who still own treasuries. He might be wrong, he might be right, but don't believe in him just 'cuz his voice is the loudest.
He's just Buffett with a girlie voice.
It means what it always means for PM's...
If you truely believe in them...and their value...and you honsetly believe...as I do....that the whole shithouse will end up going up in flames...then ignore the fucking daily noise of the spot price (unless it is lower...then buy more physical) ...hold onto your PHYSICAL silver / gold and make yourself a good plan on what you and your family can do to help ease the pain when the SHTF.
Quite simply, the answer is no. The new world order is coming one way or the other. The average joe is a retard (hint; do not be average). Regarding QE, nothing changes until the physical laws of Nature (physics and thermodynamics) push the issue of feeding the majority of the population to a breaking point. I have been in agriculture for thirty years. My Ph.D. was in Nitrogen Fixation. No matter how you slice it, the latter process is very energy intensive and it does not matter if it is being done in a "man-made" fashion, using the Habor Bosch process, or if in a bacteria in a legume (so sorry, crop rotation will not feed 8 billion people). Thermodynamics are a bitch. In addition to this stress, numerous competition will break out between how we use our available resources to begin with and supply issues will become a major problem moving forward. A perfect example is the battle brewing over fresh water sources in the southeast United States (mostly inhibited by religious zealots who don't believe in "science" to begin with). Sonny Purdue's solutions was quite literally to "pray for rain" (yes he really proclaimed this at a a public address). The new governor is a bit brighter and wants to build more reservoirs. Build all you want, what little snow pack they get and rainfall has been fluctuating more and more every year but it hovers around an average number so it is what it is, no more no less. Bottom line, you still need to FILL the reservoirs. More importantly, building reservoirs destroy farmland. After selling gold in November, I intentional bought 40 more acres in an area close to the city and a river/watershed. The bottom line is this; growth economics is dead. A state like Georgia does not have enough fresh water to meet the current demand, much less grow. I am sure some idiot will say crank up desalination. Sure, but this process also requires a tremendous amount of energy. Talk about non-sustainable. Despite all this, I see a bright future for mankind, provided that two conditions are met. 1) the vast majority of folks understand what it means to be self-sustainable (technology will help this but there are diminishing returns here. 2) compensation actually finds it ways to people are are actually worth a shit. For the latter to occur, we need to seriously shrink the workforce of the financial sector. What are the odds of that happening in this self-serving world they have created?
Did you post this on the wrong thread? Hard to connect this to a PIMCO treasury dump.
Really? Think about how insignificant all this bond shit is in view of just surviving.
Having some perspective and foresight is all that will be important soon enough.
Struggling with the effort of out thinking Bill Gross is fooling with deck chairs.
Not if Bill Gross is standing on the mast and sees the iceberg first. I still don't see the fresh-water armageddon you see. I lived in the caribbean with cisterns and desalizination. It ain't all bad or impossible.
Rock,
I like you, really, I do. "This bond shit" is the mechanism that perpetuates the survival of parasites. The people who think house prices falling is "a catastrophe." Silly people, who fully expect the government to steal for them, so their McMansions look like wise investments. Creating a culture of fools who aspire to pay retarded amounts of borrowed money to finance an "education" which serves to inflate their self-esteem, without actually making them useful, so the can get a good government job....rinse, repeat.
"This bond shit" turns welfare cases into kings, and that threatens everyone's survival. Eliminating their fraudulent source of "wealth" (by currency destruction) should be a priority for all. Discussing what we're gonna drink when the ship sinks is fooling with the deck chairs (and completely off-topic!!!).
You're sharp, Rock, I don't get this.
"some idiot will say crank up desalination. Sure, but this process also requires a tremendous amount of energy"
so I hope you are now beginning to understand how diabolical and anti-human the green movement was that stopped nuke plant construction thirty years ago. slim chance windy mills off Ga's coast could do the job.
all going as planned. malthus point convergence in 3...2..1.
Wow, how very "Club of Rome"ish circa 1970's
Where did you study off-topic crazy?
Thanks for the comment, average Joe.
He was answering the question posed by the title of the article.
Quite pertinent, I thought.
Rock,
"Answering the question" only explains two of his keystrokes. The rest is self-aggrandizing drivel that has nothing to do with the topic. People are not prepared - no shit, Sherlock. Don't worry, I'll never come to you (or him) begging for water.
Nice post, though not sure what you mean by "growth economics." Care to elaborate?
IF QE continues then one must conclude that an ever more robust inflation will encircle the globe which will cause much more social unrest at best.
I think you're missing the Forest for the Trees: Bill Gross is Long on CASH USD.
If cash is going up, then wouldn't bonds be even better than cash. They are cash plus interest.
I thought I heard this last week?
Or did I just dream it?
Wake me then, when its over.
Thanks...
My speculation is that Gross expects a pause in the QE. Bernanke will do this to cause all kinds of havoc and build a constituency for more QE. Once everyone gets the message, QE is back on. And Gross will be back in the game at that time.
no. it is not a statement about QE; it is a statement that the interest rates have been going up, and the price of the long bond going down since last October. Inflation is now baked into the cake; inflation is toxic for bond prices. Period. It doesn't matter a rat's ass whether there's some form of QE in effect or not. Basically, the anouncement is bullish for PM.s.
"This is just more evidence that any economic system based on debt is destined to fall".
And the plan seems to be that we hit the mater reset switch. That is, move to a global SDR (a.k.a Super Debt Ruin) scheme where sovereignty is exchanged for debt servitude to elite bankers.
Damn, the conspiracy looks all too real!
looks like they're going to buy stocks.
...
Pimco, based in Newport Beach, California, and led by Mohamed El-Erian, has opened a global stock fund and plans to start two that invest in the emerging markets. The firm has hired executives who previously worked at Franklin Resources Inc. and Goldman Sachs Group Inc., and this month added seven analysts and traders to help expand the active stock-fund unit.
http://www.bloomberg.com/news/2011-03-10/gross-dumping-treasuries-leads-managers-calling-rally-s-end.html
Look at the last couple of days. As soon as there is a whiff of a downdraft in the commodities and equities everybody runs to the dollar and t bonds. Pretty pathetic. As if a stinking piece of paper has more value than some of the worlds most productive companies or actual stuff that we use. Hahahaha.
Ya... so far they run to the dollar and bonds... so far...
This makes for a great time to accumulate bullion backed PMs or physical.
Let's wait until the US gets its first debt downgrade... then we'll see start to understand the term hyperinflation.
Who cares about debt downgrade?
Dollar downgrade is what's important, and it's happening as we speak, every day.
PMs are for mini-armageddon; and that's definitely coming. Let's hope that we don't see the ultimate end game with nukes flying all over the place.
'PMs are for mini-armageddon.'
Agreed! But besides that at this point in the game they are the default currency of the world. As the credibility of all fiat is coming more and more into question.
Bill Gross dumping t bonds is just another symptom of the disease process.