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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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its not like we can do anything about it
vote em out?
i didnt vote for bernanke as it is
and if voting changed anything it would be illegal anyhow
In this statement, he is flashing contempt: "Basically, the recent game plan is as simple as the Ohio State Buckeyes’
These funds are basically his life's work, almost like children.
You can try to out think him at the point of attack, but don't think there is some kind of play action, hail mary pass that's gonna happen.
Gross has played similar hands with the T and agency MBS. On the latter, why do you think F/F got unlimited potential backstop funding from the Treasury on Xmas eve '09 ?? A Gross shakedown. Size matters.
Rainman,
How do you think PIMCO dumped ALL of its US tReasure? .....Gradualy or suddenly?
Or, possibly by design, perhaps
the reality is there is there is some nice architecture in all of this.........
http://www.youtube.com/watch?v=051VhDUyras
To me this seems very significant but I am not a professional trader...not even a day trader. I would solicit the opinion of you professional traders. Is this a periodic thing? A short term play, like I might unload a particular stock just to buy another?
The other things that would make it significant is if others follow suite. Then it becomes a trend and wholesale loss of confidence or market exit. Ben Bernanke would have to whip up huge amounts of fresh FRN's and debt to cover that. Then he could become a patsy for a wholesale bond dump, right?
Like to hear from the traders and macroeconomic traders.
So the question is... what does this mean for PMs?
Good question, I agree, I have the same question.
history repeats itself 1930's redux, BUT NEW AND IMPROVED guaranteed to fuck more people than ever before. come git uself some
Gross is playing the Big player's game. Don't take him at face value. He's probably shit scared as go the times and also he has mega big clout and inside knowledge. That is a toxic combination. He could be a stalking horse for Ben Bernanke as well an ally to some fast and loose players in these desperate times. His rationality is proportional to that of the market : totally irrational. Unless there is a double take on the make. When even the most respectable sell their souls to the devil...Time will tell.
Exactly. Scare the market into selling in your wake and then buy it all back from the weak hands at a lower price. What a nice way to generate some extra trading income, put your performance above the pack, and show the investment community that you're the horse to ride. I've always viewed Gross and PIMCO as more of a trader than an investor. More likely than not, this is part of a scheme that all adds up to an abuse of market power rather than an investment strategy.
"More likely than not, this is part of a scheme that all adds up to an abuse of market power rather than an investment strategy."
I couldn't disagree with you more. He is seriously pissed off. He feels betrayed, let down and lied to, just like the rest of us. He just happens to have a trillion dollars he can put where his mouth is, that's all.
And he even said that if the yield went up he would consider buying back in. It's not exactly a super secret plot, t-bills are expensive atm in his opinion so he sold em, if his opinion changes or the get cheaper he will buy them. I agree with him. They would have to be pretty cheap for me to buy though.
That's because most people (sheeple) have their head up and locked!
Long live QE adinfinitum.....
Look I know what you are saying and both of us on this site share the same basic view of the sheeple, but... really, what can they do? Every few years you can vote and that is it. Even then, such as in Ireland, where the brand new government has already sold out the people, that often does little (witness George Bush's third term we are now enjoying).
So, other then buying some extra canned food and a few ounces of silver, that is about it, for most people. A few can get a lot of extra canned food and lots of silver, but, really, just a matter of scale.
Sorry, a bit defeated tonight.
And if the syphllitic Euro dives hard, the dollar will soar and having beaucoup dollars unattached to future interest payments will provide maximum flexibility. Such liquidity will be scarce and therefore more valuable than any other fiat, a triumph of value, no matter how transitory. It is all about now.
The British Pound is even more diseased and has been the focus of these currency ramps lo these past two years. The Euro has been the one riding in the sidecar wearing flashy clothes and gets all the attention.
The Bank of England failed back then and it has been everything under the sun thrown at it to keep it from falling like a knife. Your focus should be on the GBP.
However, the outcome will be the same, as the sidecar goes along for the ride and the Euro will still get all the attention but the one doing the real diving will be the Pound. That will, as you say, give maximum flexibility to the US dollar and give US government bonds a cushion to fall back on to soften the disruption.
Gross may not be looking for a massive tumult because there probably will not be one. Instead, he is simply calling the top.
:D
hi orly......very nice stuff.......simply calling a top and not looking for a massive tumult hits the nail on the head.
short gently into the night
btw and just for the record sold IBEX35 again at 10,400.........
Agreed. I have no doubt that the majority of people don't even know what the Federal Reserve does.
It is a Federal ...... Reserve ...... No ?