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Bill Gross Exposes "The New Paranormal" In Which "The Financial Markets And Global Economies Are At Great Risk"

Tyler Durden's picture


In his latest letter, Bill Gross, obviously for his own reasons, essentially channels Zero Hedge, and repeats everything we have been saying over the past 3 years. We'll take that as a compliment. Next thing you know he will convert the TRF into a gold-only physical fund in anticipation of the wrong-end of the "fat tail" hitting reality head on at full speed, and sending the entire house of centrally planned cards crashing down.


Toward The Paranormal

  • The New Normal, previously believed to be bell-shaped and thin-tailed in its depiction of growth probability and financial market outcomes, appears to be morphing into a world of fat-tailed, almost bimodal outcomes.
  • A new duality – credit and zero-bound interest rate risk – characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion.
  • Until the outcome becomes clear, investors should consider ways to hedge their bets, including: maximizing durations, U.S. Treasury bonds that may potentially offer capital gains, long-term Treasury Inflation Protected Securities (TIPS), high quality corporates and senior bank debt, and select U.S. municipal bonds.
How many ways can you say “it’s different this time?” There’s “abnormal,” “subnormal,” “paranormal” and of course “new normal.” Mohamed El-Erian’s awakening phrase of several years past has virtually been adopted into the lexicon these days, but now it has an almost antiquated vapor to it that reflected calmer seas in 2011 as opposed to the possibility of a perfect storm in 2012. The New Normal as PIMCO and other economists would describe it was a world of muted western growth, high unemployment and relatively orderly delevering. Now we appear to be morphing into a world with much fatter tails, bordering on bimodal. It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century. Welcome to 2012.
The Old/New Normal
But before ringing in the New Year with a rather grim foreboding, let me at least describe what financial markets came to know as the “old normal.” It actually began with early 20th century fractional reserve banking, but came into its adulthood in 1971 when the U.S. and the world departed from gold to a debt-based credit foundation. Some called it a dollar standard but it was really a credit standard based on dollars and unlike gold with its scarcity and hard money character, the new credit-based standard had no anchor – dollar or otherwise. All developed economies from 1971 and beyond learned to use credit and the expansion of debt to drive growth and prosperity. Almost all developed and some emerging economies became hooked on credit as a substitution for investment in tangible real things – plant, equipment and an educated labor force. They made paper, not things, so much of it it seems, that they debased it. Interest rates were lowered and assets securitized to the point where they could go no further and in the aftermath of Lehman 2008 markets substituted sovereign for private credit until it appears that that trend can go no further either. Now we are left with zero-bound yields and creditors that trust no one and very few countries. The financial markets are slowly imploding – delevering – because there’s too much paper and too little trust. Goodbye “Old Normal,” standby to redefine “New Normal,” and welcome to 2012’s “paranormal.”
2012 Paranormal
This process of delevering has consistently been a part of PIMCO’s secular thesis but “implosion” and “bimodal fat tailed” outcomes are New Age and very “2012ish.” Perhaps the first observation to be made is that most developed economies have not, in fact, delevered since 2008. Certain portions of them – yes: U.S. and Euroland households; southern peripheral Euroland countries. But credit as a whole remains resilient or at least static because of a multitude of quantitative easings (QEs) in the U.S., U.K., and Japan. Now it seems a gigantic tidal wave of QE is being generated in Euroland, thinly disguised as an LTRO (three-year long term refinancing operation) which in effect can and will be used by banks to support sovereign bond issuance. Amazingly, Italian banks are now issuing state guaranteed paper to obtain funds from the European Central Bank (ECB) and then reinvesting the proceeds into Italian bonds, which is QE by any definition and near Ponzi by another.
So global economies and their credit markets instead of delevering and contracting, continue to mildly expand. Yet there is bimodal fat-tailed risk in early 2012 that was seemingly invisible in 2008. Granted, the fat right tail of economic expansion and potentially higher inflation has existed for the 3+ year duration. QEs and 500 billion euro LTROs can do that. At the other tail, however, is the potential for “implosion” and actual delevering. To the extent that most sovereign debt is now viewed as “credit” in addition to “interest rate” risk, then its integration into private markets cannot be assured. If only Italian banks buy Italian bonds, then Italian yields are artificially supported – even at 7%. If so, then private bond markets and non-peripheral banks in particular may refuse to play ball the way ball has been played since 1971– purchasing government debt, repoing the paper at their respective central banks and using the proceeds to aid and assist private economic expansion. Instead, fearing default from their sovereign holdings, any overnight or term financing begins to accumulate in the safe haven vaults of the ECB, Bank of England (BOE) and Federal Reserve. Sovereign credit risk reintroduces “liquidity trap” and “pushing on a string” fears that seemed to have been long buried and forgotten since the Great Depression in the 1930s.
But delevering now has a new spectre to deal with. Not just credit default but “zero-bound” interest rates may be eating away like invisible termites at our 40-year global credit expansion. Historically, central banks have comfortably relied on a model which dictates that lower and lower yields will stimulate aggregate demand and, in the case of financial markets, drive asset purchases outward on the risk spectrum as investors seek to maintain higher returns. Near zero policy rates and a series of “quantitative easings” have temporarily succeeded in keeping asset markets and real economies afloat in the U.S., Europe and even Japan. Now, with policy rates at or approaching zero yields and QE facing political limits in almost all developed economies, it is appropriate to question not only the effectiveness of historical conceptual models but entertain the possibility that they may, counterintuitively, be hazardous to an economy’s health.
Importantly, this is not another name for “pushing on a string” or a “liquidity trap.” Both of these concepts depend significantly on perception of increasing risk in credit markets which in turn reduces the incentive of lenders to expand credit. Rates at the zero bound do something more. Zero-bound money – credit quality aside – creates no incentive to expand it. Will Rogers once fondly said in the Depression that he was more concerned about the return of his money than the return on his money. But from a system-wide perspective, when the return on money becomes close to zero in nominal terms and substantially negative in real terms, then normal functionality may breakdown. We all start to resemble Will Rogers.
A good example would be the reversal of the money market fund business model where operating expenses make it perpetually unprofitable at current yields. As money market assets then decline, system-wide leverage is reduced even if clients transfer holdings to banks, which themselves reinvest proceeds in Fed reserves as opposed to private market commercial paper. Additionally, at the zero bound, banks no longer aggressively pursue deposits because of the difficulty in profiting from their deployment. It is one thing to pursue deposits that can be reinvested risk-free at a term premium spread – two/three/even five-year Treasuries being good examples. But when those front end Treasuries yield only 20 to 90 basis points, a bank’s expensive infrastructure reduces profit potential. It is no coincidence that tens of thousands of layoffs are occurring in the banking industry, and that branch expansion is reversing industry-wide.
In the case of low borrowing rates, this paradox at first blush seems illogical. If a bank can borrow at near 0% then theoretically it should have no problem making a profit. What is important, however, is the flatness of the yield curve and its effect on lending across all credit markets. Capitalism would not work well if fed funds and 30-year Treasuries perpetually co-existed at the same yield, nor if commercial paper and 30-year corporates did as well. It is not only excessive debt levels, insolvency and liquidity trap considerations that delever both financial and real economic growth; it is the zero-bound nominal yield, the assumption that it will stay there for an “extended period of time” and the resultant flatness of yield curves which are the culprits. That front ends of yield curves are relatively flat at near zero percent interest rates is critical as well. If they were flat at 5% as in 2007, then banks and investors could extend maturities with the possibility of capital gains. Now at 1% or lower, they cannot. Leverage is constrained.
Conceptually, when the financial system can no longer find outlets for the credit it creates, then it de-levers. The point should be understood from a yield as well as a credit risk point of view. When both yield and credit are at risk the mix can be toxic. The recent example of MF Global emphasizes the concept, as does the behavior of depositors in some struggling European economies. If an investor has money on deposit with an investment bank/broker that not only appears to be at risk but returns nothing, then why maintain the deposit? Perhaps an investor would be more comfortable with a $100 bill at home in a mattress than a $100 bill on deposit with a broker – Securities Investor Protection Corporation notwithstanding. If so, system wide delevering takes place as opposed to the credit extension historically necessary for an expanding economy.
This new duality – credit and zero-bound interest rate risk – is what characterizes our financial markets of 2012. It offers the fat-left-tailed possibility of unforeseen – delevering - or the fat-right-tailed possibility of central bank inflationary expansion. I expect the January Fed meeting to mirror in some ways what we have first witnessed from the ECB. It won’t take the form of three-year financing by a central bank – but will give assurances via language that the cost of money will remain constant at 25 basis points for three years or more – until inflation or unemployment reach specific targeted levels. QE by another name I suggest. If and when that doesn’t work then a specific QE3 may be announced – probably by mid-year – and the race to reflate will shift into high gear. But the outcome of left-tailed delevering or right-tailed inflation is not certain. Both tails are fat.

Investment Implications
The critical question of course is whether efforts by the ECB, BOE, and Fed will work. Can they reinvigorate animal spirits in the face of “credit” and “zero bound money” risk? We shall see. An investor however should hedge his/her bets until the outcome becomes more obvious.
Bond Markets:
  1. Durations and average maturities should be at their maximum permissible limits. Even if reflation is successful it will only be because the Fed and other central banks keep policy rates low for an “extended period of time.” Financial repression depends on negative real yields and until inflation moves higher for a period of at least several years, central banks will hibernate at the zero bound
  2. The bulk of sovereign bond holdings should be in the U.S. as long as Euroland credit implosion is possible investors should gravitate to the “cleanest dirty shirt” sovereigns with the least encumbered balance sheets. Anything short of a 5-year maturity however yields relatively nothing and provides minimal rolldown. Focus on 5–9 year Treasury maturities to guard against inflation which create opportunities to take advantage of rolldown capital gains.
  3. Long Treasury maturities should be held in TIPS form.  If inflation really is coming, then an investor will want assets that offer inflation-protection.
  4. Corporate credit purchases should be in higher-rated   A and AA paper. Senior as opposed to subordinated holdings in finance/bank debt should be considered as well. Haircuts ahead?
  5. U.S. municipals represent an opportunity from the stand point of valuation. Their yields of 5–6% are near historically high ratios to Treasuries. They do, however, entail risk – not only volatility but occasional default risk. This is not a Meredith Whitney echo but simply a recognition that you usually get what you pay for in this world and nothing comes for free. Be selective and avoid states/municipalities with pension and funding problems.
  6. Continue to avoid Venus fly trap peripheral Euroland paper. Italian bonds at 7% for instance are enticing but have trap door possibilities that could see further “price” defaults in 2012.

Stocks and Commodities:

  1. Stocks yield more than bonds and will tend to do better in anything but a delevering fat left tail. That, however, is what worries us. Equity allocations, therefore should favor higher yielding companies in sectors with relatively stable cash flows: Electric utilities (yes they appear overbought), big pharma and multinationals should head your shopping list.
  2. Commodities could go either way depending on the tails but scarcity and geopolitical considerations (Iran) favor a positive tilt. Gold at $1550 seems pricey but it has upward legs if QEs continue.


  1. The dollar is king with a left-tailed delevering scenario – pauper in a right-tailed global reflationary expansion.
For 2012, in the face of a delevering zero-bound interest rate world, investors must lower return expectations. 2–5% for stocks, bonds and commodities are expected long term returns for global financial markets that have been pushed to the zero bound, a world where substantial real price appreciation is getting close to mathematically improbable. Adjust your expectations, prepare for bimodal outcomes. It is different this time and will continue to be for a number of years. The New Normal is “Sub,” “Ab,” “Para” and then some. The financial markets and global economies are at great risk.

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Wed, 01/04/2012 - 08:55 | 2032317 Oh regional Indian
Oh regional Indian's picture

I think post-normal fits this coming time well. In post normal, there is no normal.

This is the year when the tail will wag the belle, curvey or other-wise.

I call it the year of anomaly. 



Wed, 01/04/2012 - 09:07 | 2032333 Momauguin Joe
Momauguin Joe's picture

Underground survival shelters are all the rage in the Hamptons, Bronxville and Greenwich.


Wed, 01/04/2012 - 09:11 | 2032338 I think I need ...
I think I need to buy a gun's picture

devaluation/revaluation or reset has to happen by march or its a 2013 after election event

Wed, 01/04/2012 - 09:36 | 2032370 MillionDollarBonus_
MillionDollarBonus_'s picture

Key events to watch in 2012: 

The economy: Will 2012 be the year of recovery?

US energy policy: Will Obama successfully reduce America’s dependence on foreign oil?

GOP primary: Can Rick Santorum challenge Mitt Romney’s lead in the polls?

Europe: Will President Herman Van Rompuy resonate with the European people and achieve fiscal and monetary union?

Iran: Will Obama outline clear policy initiatives to protect Israel from potential threats?

Climate Change: Will G20 leaders finally devise global legislation for taxing excessive carbon emissions and achieve climatic equilibrium?

The US Deficit: Will congress outline a responsible plan for reducing the deficit, while at the same time ring-fencing key government functions such as social security, Medicare and National Defense? 

Wed, 01/04/2012 - 09:37 | 2032384 Momauguin Joe
Momauguin Joe's picture

Fat, drunk and stupid is no way to go through life, son.

Wed, 01/04/2012 - 09:55 | 2032416 blindfaith
blindfaith's picture

he was kidding you, son.  It was a joke.

Tyler, where is that sarcasum and or 'it is a joke' ICON on the comment bar?  You promissed.

Wed, 01/04/2012 - 10:00 | 2032435 Calmyourself
Calmyourself's picture

"achieve climate equilibrium" you bet, right after they glue fault lines ensuring no more Fukushimas, outlaw hurricanes and stick corks in volcanoes..

Fred Singers take on Global warming and its flawed methodologies.

Wed, 01/04/2012 - 10:36 | 2032510 LawsofPhysics
LawsofPhysics's picture

Does not matter, he is being sarcastic and he knows full well that the answer to all his questions is NO.

Wed, 01/04/2012 - 17:19 | 2033701 Big Slick
Big Slick's picture

... and that foot is me.

Wed, 01/04/2012 - 13:58 | 2033214 snakeboat
snakeboat's picture

u a funny funny man

Wed, 01/04/2012 - 10:01 | 2032436 francis_sawyer
francis_sawyer's picture

Re: underground shelters


I've always been fascinated by those cave dwellings (like in Cappadocia, Turkey), & really... all over the globe...

I used to think it was cultures who decided to live that way, but more & more I'm styrting to think that the people probably lived just like we did, and that there were also a bunch of rich Goldman Sachs type fucks (of the day), that knew they were fucking with things so bad that some day they'd need to BUG OUT & employed slaves to build them for them...




Wed, 01/04/2012 - 11:09 | 2032621 Cast Iron Skillet
Cast Iron Skillet's picture

If I ever have to spend time in an underground shelter like that, I think I'll draw a horse or buffalo or some animal on the wall.

Wed, 01/04/2012 - 12:11 | 2032860 jc125d
jc125d's picture

Or put your hand on the wall and shoot it with orange spray paint.

Wed, 01/04/2012 - 10:04 | 2032441 DeltaDawn
DeltaDawn's picture

Protect them from the urban hoardes coming to loot the 1%?

Wed, 01/04/2012 - 10:30 | 2032452 Momauguin Joe
Momauguin Joe's picture

So it seems. A hedge for when the "private security" goons can no longer be depended on to defend the ramparts of old money gated communities.

Wed, 01/04/2012 - 11:11 | 2032627 LowProfile
LowProfile's picture

The problem with private security is they expect to get paid...

Wed, 01/04/2012 - 10:49 | 2032542 Cpl Hicks
Cpl Hicks's picture

Addendum to 2012 resolutions: Protect the hoard from the horde.

Wed, 01/04/2012 - 12:55 | 2033009 Pegasus Muse
Pegasus Muse's picture

"When both yield and credit are at risk the mix can be toxic. The recent example of MF Global emphasizes the concept, as does the behavior of depositors in some struggling European economies. If an investor has money on deposit with an investment bank/broker that not only appears to be at risk but returns nothing, then why maintain the deposit? Perhaps an investor would be more comfortable with a $100 bill at home in a mattress than a $100 bill on deposit with a broker ...."

And even more comfortable with ounces of silver and gold tucked safely away from the clutches of thieving gangster banksters who would "MF Global" client funds.

MF Global Sold Assets to Goldman While It Was Looting Their Customer Accounts

It turns out that MF Global sold hundreds of millions in assets to Goldman in the last two business days before its bankruptcy.It is not clear that MF Global actually received the payment for the sale, or if the funds were held by their clearing agent and banker, JP Morgan, who knew that they were going to be bankrupt.

Wed, 01/04/2012 - 13:34 | 2033147 BalanceOrBust
BalanceOrBust's picture

Wouldn't the rich be better buying some real estate in Wyoming, or the British Columbia interior?  There they could build new mansions far from the prying eyes of everyone (don't worry, the marauding hordes will no longer have access to satellites or to private planes come doomsday).  The mansions could be surrounded by huge estates, stocked with game and fish and berry bushes.  Build a windmill (or better yet, a small hydroelectric facility), and live out your life in splendour while the rest of the world goes to the dogs (er, marauding hordes).


Godd thing I know the back-country.  I will find them, poach their fish and game, and squat in the east wing of their hideaway mansions.

Wed, 01/04/2012 - 09:22 | 2032357 pine_marten
pine_marten's picture

Novelty comes to mind as well.

Wed, 01/04/2012 - 09:44 | 2032393 Green Leader
Green Leader's picture

Very well said, Vivek.

My post-normal has become working with my body into learning how to flush chemtrails out. Bring it on!

Wed, 01/04/2012 - 10:19 | 2032470 Bansters-in-my-...
Bansters-in-my- feces's picture

Hey Green Leader,.

They are really laying out the Chemtrails where I am from in Canada,and 99% of the sheeple don't even know it.

And when you point it out,they say.....Huh...!

Fucking idiots.

Wed, 01/04/2012 - 13:05 | 2033057 FreeNewEnergy
FreeNewEnergy's picture

My quick take on chemtrails and global warming: They are related. The Chemtrails always come out on sunny days, blocking the sun's rays through the depleted ozone layer. This ties in with global warming. Whatever the "leaders" point out or deny, they know it is a problem, and just like deficits and imploding financial systems, they lack the political will to do anything about it.

Case in fact: I live in Rochester, NY, on the North shore of Lake Ontario. Normal snowfall for December is 19.7 inches. ( year we had 4.8. It has been much warmer than usual. Only two days thus far have remained below freezing for an entire 24-hour period. It is expected to remain close to or above freezing for the next 7-10 days, which puts us near the middle of the month and with only 1-2 inches of measurable snow. This is highly unusual. The normal snowfall is 23.5 inches, and we'll be half way through the month and about 80% below normal.

While I am not a full-fledged proponent of global warming via man-made inputs, I cannot dismiss its possibility. Whatever the case, it's much warmer here than usual this winter, the chemtrails are fairly constant on sunny days, which also have been more plentiful this year, though I believe the real culprit is ozone depletion, not CO2, but I'm not a scientist.

In the short run, snow shovels and blowers are getting a big rest. Snow plowing around here is normally a good seasonal business, but this year, these mostly-self-employed types are getting killed. People were playing golf the day after Thanksgiving. Unheard of around here. There was so little snow, you could have played golf on our three public courses for free on about 15 days through December.

I've heard also that the snow cover is way off for the nation, about 28% compared to the normal 57%.

The weather will change, and we will likely have a number of 6-18 inch snowfalls yet, but our November-April total will be well below the average of 92 inches.

One cannot dismiss the possibility of this winter being an anomaly, but generally, winters have been milder than normal for the better part of the last 12 years.

Whatever the case, my fuel bills are way down (Applause!) and Spring planting may be earlier than normal. Last freeze has been moving steadily backwards - earlier and earlier - every year for the last 20-25 years.

Junk or comment at will.

Wed, 01/04/2012 - 17:27 | 2033719 Big Slick
Big Slick's picture

My quick take on chemtrails and global warming: they are related... Both are simplistic hoaxes perpetrated to confuse tinfoil hat-wearing conspiracy theorists :)

Wed, 01/04/2012 - 22:41 | 2034401 Green Leader
Green Leader's picture

If you know some Spanish this is a great website on how drying up the land is done:

It's worth at least a look at the pictures.

Wed, 01/04/2012 - 22:45 | 2034412 Green Leader
Green Leader's picture

Chemtrails destroy and/or atrophy a lot of crops.

Here in the US Caribbean plantains & bananas, citrus, taro, papaya, mangoes, breadfruit--all messed up.

Seems like 'somebody' doesn't want people taking their vitamins.

Hunger is coming for the 99%.

Wed, 01/04/2012 - 11:58 | 2032823 Bindar Dundat
Bindar Dundat's picture

I like the new Panorama turbo better then the paranormal with the fat tail.  It is a lot more fun to drive  then watching the money vanish in front of you. Buckle up kids we are going into a hairpin turn way to fast!

Wed, 01/04/2012 - 12:23 | 2032898 Imminent Collapse
Imminent Collapse's picture

Somewhat off topic, but watch this lecture of from a former CIA agent of how blogs provide the only real information we are getting.  He rails about the state of the government, the Fed, and the "war on terror".  Worth your time.  10 minutes.


Wed, 01/04/2012 - 08:57 | 2032320 jcaz
jcaz's picture

People here bash Bill, but gotta admit, he's not afraid of pissing off the Mothership that pays him.....

Wed, 01/04/2012 - 09:52 | 2032403 blindfaith
blindfaith's picture

well, what has he got to loose?  I mean he can quit today and be set for life.

I never have liked some of his "ideas" like this one:

Long Treasury maturities should be held in TIPS form.  If inflation really is coming, then an investor will want assets that offer inflation-protection.

With the gov in-charge of distortion and imaginary numbers this is a looser. 

And, what planet is Bill posting from that he doesn't see inflation has chewed up America and the world.


Wed, 01/04/2012 - 09:58 | 2032423 ViewfromUnderth...
ViewfromUndertheBridge's picture

Lose and loser. Bill is at least from a planet that can fucking spell.

Wed, 01/04/2012 - 12:12 | 2032863 jc125d
jc125d's picture

He always talks his book.

Wed, 01/04/2012 - 09:05 | 2032321 GetZeeGold
GetZeeGold's picture



Risk? This is the first I'm hearing about this.


You should have bought gold and silver 11 years ago. Don't you remember all the talking heads on CNBC screaming at you to buy?


Oh.....that's right.....that didn't happen......still isn't happening......and is not going to happen. Ask yourself.....why not?

Wed, 01/04/2012 - 10:21 | 2032474 Life of Illusion
Life of Illusion's picture



Bill the paper man finally realizes what CB planning is doing to his game, driving investors to real assets.  Bill is a frustrated politically correct paper pusher that should have purchased real assets years ago and still can’t.

No growth means CB’s print, currency devaluations, paper destruction, goes on for years.  I don’t think he will be saying gold is pricey a few years from now.


Wed, 01/04/2012 - 09:04 | 2032328 847328_3527
847328_3527's picture
Mortgage demand fell at year-end, purchases sag


This is another proof of what Bill Gross said about  " falling aggregate demand" .....a huge problem.

Wed, 01/04/2012 - 09:05 | 2032330 Ghordius
Ghordius's picture

Indeed Bill Gross is nearly quoting ZH - quite a compliment...

yes, the USD cash is king - until it isn't, but the question is timing

what he does not mention is that leverage is at risk

I think he must have quite a strange relation to his bosses... LOL

Wed, 01/04/2012 - 14:16 | 2033261 slewie the pi-rat
slewie the pi-rat's picture

yes, but given that there is nothing here tyler hasn't already covered [the CP market explanation is older than zirp] i was a bit wary of his calling the terms he was heisting from zH:  "...New Age and very “2012ish.”

bill is interested in maintaining investors' confidence in him

tyler's (and our) fringe blogging seems more about gleaning deeper truths about this situ and that situ (and The Situ?)

as we go into 2012, the fact is that tyler & zH has the most accurate and real analysies of 'where we're at', where we're heading, and what the big issues and choices are

since the MSM has been reined in by their corpo-fascist masters and makes even less sense than usual, at least bill gross has taken tyler's dialogue with him to heart and is capable of seeing the more-embracing paradigms and 'truths'

...also, ghordi, he mentioned "deleveraging" a few times...concluding that theme w/: Stocks yield more than bonds and will tend to do better in anything but a delevering fat left tail. That, however, is what worries us.

other than that, he can kiss my ass

Wed, 01/04/2012 - 09:16 | 2032344 RobotTrader
RobotTrader's picture

First thing investors do is dump commodities and flee into bonds.


10-yr. back down to 1.94%.

If ES breaks below 1200, we'll see 1.5% and gold back under $1,500.

Wed, 01/04/2012 - 10:04 | 2032438 francis_sawyer
francis_sawyer's picture

First thing Robo Trader does is look at yesterdays candlesticks, and extrapolate trends from that...

Wed, 01/04/2012 - 10:05 | 2032443 css1971
css1971's picture

Yes that's the easy thing to see. What happens when it's the other way round? When goods are becoming more scarce due to energy pricing. Inflation is picking up and making bonds a loser. Bonds peak, start on the downslope and the money goes where? What does the money chase?

I have my own theory and asset allocation on that.

Wed, 01/04/2012 - 10:20 | 2032471 Calmyourself
Calmyourself's picture

Good point robo, selling all my food production stocks and am buying treasuries.. I feel so safe.. :[

Wed, 01/04/2012 - 18:31 | 2033863 malek
malek's picture

Waiting for it - I have the cash at hand to walk over to my coin dealer and pick up some more Au.

Wed, 01/04/2012 - 09:16 | 2032345 cranky-old-geezer
cranky-old-geezer's picture



Wow, $50 trillion debt paper bubble to keep inflated (keep from fucking crashing).

Good luck with that.

Wed, 01/04/2012 - 10:27 | 2032492 tarsubil
tarsubil's picture

The top gray fraction can expand to $50 tril while the bottom blue three decrease to 0. No problem.

Wed, 01/04/2012 - 09:17 | 2032349 Reform1776
Reform1776's picture

He has made some really terrible calls lately though. Is he turning into a great contrarian indicator?

Wed, 01/04/2012 - 09:18 | 2032353 new game
new game's picture

massive leverage! THAT IS THE NEW NORM.

print next. only outcome avail (in their minds)

sure they understand all we do, but to give up the power?

when they dont have to. would you?

real outcome IMO; devaluation from printing of a new norm rate.

call it massive devalue for the masses; as in u fucked...

Wed, 01/04/2012 - 09:20 | 2032354 misterc
misterc's picture

I have a (suspended) pension plan (EUR) with Allianz - they promise me 4% return (bonds) forever. They took this plan out of retail in 2008.
I wonder where or how Pimco will make 4% year in, year out to make me whole... the only outcome I can imageine would be inflation at 7% and my returns at 4%. That's why I voted for Gold.

Wed, 01/04/2012 - 09:52 | 2032409 youngman
youngman's picture

They will have to buy Greek and Italian laugh...but they will...they have to chase "returns"...pensions too...

Wed, 01/04/2012 - 18:34 | 2033870 malek
malek's picture

Only question for you is when German REAL inflation goes above 4%... then you are not making anything in real terms anymore

Wed, 01/04/2012 - 09:26 | 2032361 Mercury
Mercury's picture

Fringe is fab.

Wed, 01/04/2012 - 09:27 | 2032363 chinaguy
chinaguy's picture

Asset manager PIMCO’s Total Return fund saw outflows in December of $1.4B, and $5B for 2011. That follows 2010 with outflows of $6.7B.

Wed, 01/04/2012 - 09:32 | 2032372 Caviar Emptor
Caviar Emptor's picture

Lisen to Premier Wen:

“We see downside pressure on our economy and elevated inflation at the same time,” Wen said during a two-day trip to Hunan province, according to a statement on the government’s website yesterday. “We also face problems of weakening external demand and rising costs for companies.”

He couldn't have described Biflation more perfectly. And yes, it's affecting even China now. It's gone global. There is no escape anymore and it's here to stay for a long, long time. Bill Gross is saying virtualy the same thing when he talks about Fat left and right tails: deflation risk and infation risk. The reason he can't tell which will prevail is because both will prevail. And will screw up any investment strategy that favors either an inflationary outlook or a deflationary-delevering outlook. The one outcome that is certain: the purchasing power of currency will tank 

Wed, 01/04/2012 - 11:00 | 2032588 falak pema
falak pema's picture

you have to be a double deckered dikk to win in this world; subtle like a slit eyed mandarin, quick like an Indian cobra, and dualist like a french Cathar Perfectus. Don't get burnt and don't leave your back or your butt naked to the ravenously hungry. Duelist and dualist is the way to go,  in two colts gunslinger shoot out style. Kyle the Seal and Kyle the HF king rolled into one King Kyle Kong who can outswing deflationary Merkozy and outthink inflationary Ben Bernanke.

Can anybody buy me a Bourbon to swing on the pole of Kingly beheading by strangulation...Its Tyburn Way times for the Oligarchs. But they just keep kicking the can and we all watch the burning lands. Looks like Tyburn Way is still a place reserved for the sheeple...

Wed, 01/04/2012 - 12:39 | 2032961 jc125d
jc125d's picture

who scribbled all night rocking and rolling over lofty
              incantations which in the yellow morning were
              stanzas of gibberish

Wed, 01/04/2012 - 13:40 | 2033164 slewie the pi-rat
slewie the pi-rat's picture

william "varieties of religous experience" james on nitrous?

Wed, 01/04/2012 - 12:17 | 2032878 twotraps
twotraps's picture far as Wen goes, I Always wait for direction from a guy in charge of a non-convertible currency in a non-negotiable situatiuon before I take any action with my finances.  Its like Iran holding a press conference with two token women and cameras........desperately trying to look legit and be considered an adult at the table.  Only problem is that the US has twisted the game so much there is no adult table there is no credibility.  

Wed, 01/04/2012 - 09:32 | 2032374 vegas
vegas's picture

You don't need to be paranormal to know the entire Ponzi is at great risk.

Wed, 01/04/2012 - 09:33 | 2032376 Eanach1
Eanach1's picture

Can anyone explain this bimodal, bell-shaped, thin-tailed, and fat-tailed stuff to me in plainer language?

Wed, 01/04/2012 - 09:39 | 2032389 Caviar Emptor
Caviar Emptor's picture

He's referring to the risk of inflation on the one hand, and the risk of delever-deflation on the other. Fat tails just means that the risk of extreme outcomes is way higher than under equilibrium conditions where the tails of a probability distribution like the bell-shaped curve are thin

Wed, 01/04/2012 - 09:57 | 2032419 Return2Sanity
Return2Sanity's picture

Exactly right.

Fat-tailed = high risk

Thin-tailed = low risk

Bimodal = we're screwed either way


Wed, 01/04/2012 - 11:58 | 2032824 rosiescenario
rosiescenario's picture

"Bimodal = we're screwed either way"


....or, you have 2 opportunities to make a few $$ off this disaster...not one, but 2.........but wait, there may be more

Wed, 01/04/2012 - 10:16 | 2032461 Eanach1
Eanach1's picture

Thank you! Glad I asked.

Wed, 01/04/2012 - 10:04 | 2032439 kaiserhoff
kaiserhoff's picture

Credit markets have not been allowed to work normally or set market interest rates since the 9-11-2001 financial panic, which only got worse after the real estate collapse.

Soviet Central Planning never works for long, so...we are headed for:

1 A full blown depression due to international bank/sovereign defaults, or

2 Hyperinflation as central banks desperately try to avoid the inevitable, or my favorite,

3  first depression, then hyperinflation.

pay your nickel and place your bet;)


Wed, 01/04/2012 - 10:43 | 2032525 Variance Doc
Variance Doc's picture

Sure.  Think of a probability distribution as a histogram - a plot of all possible outcomes in the sample.  Instead of just looking at the plot, we would like some summary measures to helps us characterize/describe the distribution.  There are several measures of central tendency, such as the mean, median (they are but two of many possible measures) and standard deviation (a measure of the average deviation around the average).

When the distribution has one peak e.g bell shaped distribution, usually the bulk of the outcomes is located around the mean.  This is where we get the notion of average outcomes - most fall around the mean, median, etc.  Now looking away from the average behavior of the outcomes, we start looking at the tails.  The tails of a distribution are where large or small outcomes occur; they do not fall near the mean.  For a Gaussian or bell shaped distribution, the probability of large or small outcome is very rare.  For example, the probability of small or smaller outcome that is 2 standard deviations below the mean is about 2.2%.

Now, many distributions have thicker tails, which just refers to the fact that large or small events occur more often; they have a higher probability.  For example, a t-distribution with 4 degrees of freedom, the probability that an outcome falls 2 standard deviations below the mean is about 5.8%; compare that with the Gaussian case above - a 163% increase in the probability of observing an outcome 2 stander deviations below the mean.

Another way of generating thicker (aka fatter) tails is with mixtures of Gaussian (bell shaped) distributions.  This leads to the so called bimodal distributions; there are two peaks or modes whereas above we only had one peak or mode.  Note that is this not the only way to generate bimodal distributions, but it is the easiest way to see them.  Here we generate higher probabilities of rare outcomes buy placing the mean (typically) in-between the two modes, so that one mode is on the smaller side and one in on the bigger side.  Now apply the concepts of observations around the mean, as above, for these two modes and you should get the picture.

Hope this helps….

Wed, 01/04/2012 - 09:34 | 2032378 Corn1945
Corn1945's picture

Bill Gross is totally discredited.

How about avoiding Treasuries entirely which are low yield junk bonds?

Wed, 01/04/2012 - 11:07 | 2032616 Cpl Hicks
Cpl Hicks's picture

He could rename it the Total Junk And Hope To Get A Return Fund.

Or he could just turn it over to the kids and chill out with a bottle of chardonnay and watch the sun set into the mighty, hulking and mysterioso Pacific Ocean.

Wed, 01/04/2012 - 13:21 | 2033105 Things that go bump
Things that go bump's picture

"mighty, hulking, radioactive and mysterioso Pacific Ocean."  There, fixed it for you. 

Wed, 01/04/2012 - 09:38 | 2032388 Northeaster
Northeaster's picture

Maybe some of the financial wizards of the ZH community know more, but I don't see what Gross is saying as anything new.

Between here and other financial sites, if I read correctly, the derivative market alone is worth three-times the world economy? Thanks mostly to the change in 2000 law. If I also read correctly, a few weeks ago, Bank of America was using this leverage and trying to put it on the taxpayer?

So to me, a lay person when it comes to this arena, it appears the bomb is already placed, all they (financial institutions) have to do it detonate it. This is their leverage on our CONgress basically saying: "Go ahead, we dare you!"


Wed, 01/04/2012 - 10:00 | 2032434 LawsofPhysics
LawsofPhysics's picture

Let them detonate it, fucking bring it.  Fuck the paper pushing fucknuts, I know the value of my labor and that of my employees, we will survive just fine.  Enough is fucking enough.

Wed, 01/04/2012 - 10:10 | 2032450 francis_sawyer
francis_sawyer's picture

Samuel L. Jackson moment...

Wed, 01/04/2012 - 10:35 | 2032506 CvlDobd
CvlDobd's picture

What about the demand for that labor?

Wed, 01/04/2012 - 11:58 | 2032821 LawsofPhysics
LawsofPhysics's picture

The demand for survival and innovation (and hence, productive labor) will NEVER go away.  Know the real value of your labor?  You fucking better, fuck the paper-pushing fucknuts (thier labor is of NO value).

Wed, 01/04/2012 - 11:10 | 2032626 Cpl Hicks
Cpl Hicks's picture

If you have any job postings coming up on craigslist please give us the secret code word.

Wed, 01/04/2012 - 09:50 | 2032404 Return2Sanity
Return2Sanity's picture



There is no longer any incentive for a sovereign to repay its debt once the interest payment exceeds the deficit. The two main policy actions we've seen (1. increase the deficit and 2. lower the interest rate), implemented here as well as in Japan and Europe, were designed to postpone this event. However, increasing the deficit just balloons the overall interest payment, while lowering the interest rate makes investors more reluctant to take risks. Obviously, this game cannot be won, but the important question remains: how long will it go on?


Wed, 01/04/2012 - 09:58 | 2032428 LawsofPhysics
LawsofPhysics's picture

"how long will it go on?"  -  Easy, for as long as the Federal Reserve exists and has the ability to simply add zeros to the accounts payable side of their books.

How fucking stupid are you?  End the damn Fed and the excessive usury already.

Wed, 01/04/2012 - 10:09 | 2032447 Calmyourself
Calmyourself's picture

I don't think his question on timing is fucking stupid at all.  If your hypothesis is simply that the fed can continue to add zero's and no one and I mean no sovereign, Saudi's or the  Chinese ever figure a way around that particular Ponzi you are shortsighted.  I find most of the questions regarding timing this fat tailed domino mess very interesting and worth exploration.  A throwaway line like end the fed is just that a throwaway line.. 

Wed, 01/04/2012 - 10:24 | 2032485 LawsofPhysics
LawsofPhysics's picture

Fine, then make a prediction smart guy.  The Fed has been doing this for over a hundred years, what real evidence do you have that it will end anytime soon?

Wed, 01/04/2012 - 10:35 | 2032507 Calmyourself
Calmyourself's picture

No real evidence smarter guy, I just said that discussing the timing of this ending is interesting and a conversation worth having.  The Chinese with their recent moves to build IMO a greater Asian prosperity sphere are moving toward yuan convertibility.  The sovereigns are not stupid and neither are questions on timing.  I am happy you know the value of your labor but that makes all other questions and statements other than "end the fed" fucking stupid?  Don't think so champ and oh, try some decaf..  Oh and one more thing, the Fed was established December of 1913 so not quite a "over a hundred years"..

Wed, 01/04/2012 - 12:00 | 2032826 LawsofPhysics
LawsofPhysics's picture

Wow, sorry that you can't think of better things to be doing, I certainly can.  And wrong, the Fed (Rothschild's Windsor's, rockafellars, etc.) have been around a lot longer and have been funding both sides of numerous wars (like the war of 1812) for a very LONG time.  WAKE UP!

Wed, 01/04/2012 - 12:41 | 2032969 Return2Sanity
Return2Sanity's picture


I agree with you, Calmyourself. If a central bank could create an infinite market for debt, we would all have been living on easy street for the past 100 years. Our problems cannot be solved by the Fed. Consider that the Mesopotamians invented debt jubilee around 2000 BC. The reason it began was that creditors took peasants' resources away, so they were no longer able to be productive, and the bad effects rippled throughout society. It's clear that the indebted peasants had little political power, yet the rulers regularly voided all their debts because it brought their economy back into balance. History would suggest that the tipping point occurs when it becomes clearly recognized that excess debt is destroying productivity.


Wed, 01/04/2012 - 09:53 | 2032410 firstdivision
firstdivision's picture

There is no risk anymore.  Even the governments have mandated having numbers fudged to make everything okay.  Take the MBA Index, which has been beaten into the ground, yet home sales are up o_O That my friends is the new normal. 

Wed, 01/04/2012 - 09:55 | 2032417 LawsofPhysics
LawsofPhysics's picture

Yep, and moving forward, everything "bad" will be "unforeseen" and increasingly more destructive and deadly by design.  If you can't put your hands on it, you don't own it and there is a good chance whatever "it" is, it will have already been stolen.

Wed, 01/04/2012 - 14:46 | 2033292 Things that go bump
Things that go bump's picture

You don't even own your paid up real estate; your government does.  You can ask the Kulaks (but you will need a psychic medium).  Government is the enemy here.  Government allowed the financial sector to run amok and bring us all to the brink of ruin AGAIN by removing or not enforcing the regulations put in place after the last debacle.  Government continues to refuse to enforce the laws and regulations that are on the books and there is no other explanation then that it is complicit and it is now every man for himself. Government is now arming itself with unconstitutional laws that will enable it to turn against its own citizens.  The bankers simply did what bankers do. I am not in any way defending them, and won't shed any tears if they are shot down like rabid dogs along with the bureaucrats they bought, but even the most cursory study of history reveals their predatory nature, and you can't expect a sociopath to develop a social conscience. 

Wed, 01/04/2012 - 09:53 | 2032411 LawsofPhysics
LawsofPhysics's picture

Sure Bill, what were your outflows last month again?  Wake folks, if you can't put your hands on it, it isn't yours and there is a good chance it has already been stolen.

Wed, 01/04/2012 - 09:58 | 2032422 Bansters-in-my-...
Bansters-in-my- feces's picture

Long story made short,this sounds very bullish for th U.S markets.

Wed, 01/04/2012 - 10:07 | 2032445 jcaz
jcaz's picture

Yeah, you go with that.....

Wed, 01/04/2012 - 10:16 | 2032460 Calmyourself
Calmyourself's picture

Banster you forgot this "sarc"..  You can borrow this one.

Wed, 01/04/2012 - 10:12 | 2032454 Bansters-in-my-...
Bansters-in-my- feces's picture

I say fuck the big multi nationals.


Fuck MillionDollarBonus too,...up the ass....

Wed, 01/04/2012 - 10:21 | 2032472 oogs66
oogs66's picture

he is stealing ZH's LTRO rage!

Wed, 01/04/2012 - 10:26 | 2032489 Shibumi2
Shibumi2's picture

George Bush, Statesman and Dear Leader framed the essential issue for 2012:


"Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we." —Washington, D.C., Aug. 5, 2004

Wed, 01/04/2012 - 10:44 | 2032532 Agent P
Agent P's picture

You forgot "Abby"...


"Now that brain that you gave me. Was it Hans Delbruck's?" 
"Ah! Very good. Would you mind telling me whose brain I did put in?" 
"Then you won't be angry?" 
"I will NOT be angry." 
"Abby someone." 
"Abby someone...Abby who?" 
"Abby Normal?" 
"I'm almost sure that was the name."

Wed, 01/04/2012 - 10:54 | 2032571 verum quod lies
verum quod lies's picture

I still see the same bet, just more explicit outcomes than when it all seemed to begin. Gross is connected to the beast(s) that caused this, and he is still seemingly uneasy about 2012. The currency regime that has lasted since the early 70s is on its last legs, and he, and many others, still cannot call a spade a spade. Let’s all hold hands and repeat the following: “It’s a currency regime bet, it’s a currency regime bet …”

Therefore, will you bet that the powers that be will admit they f_ed it all up and let little Miss Deflation have her way, or will they continue to keep pumping fiat into a debt saturated world (i.e., private, corporate and now even government debt saturated), and try to deny reality? That’s right, the Bernank and other fellow travelers keep telling us that the solution to too much debt is more debt (to too much regulation is more regulation, to too much government is more government, …). I’ll stick with the Bernank, Greenspan, Summers, etc. until they show cards that would indicate otherwise. And right now, and no matter what way Mr. PIMPCO Gross spins it, I wouldn’t hold long debt unless you paid me (and right now you must pay them – i.e., given negative real yields). No, no it’s a sucker that flinches when the shills and related insiders declare the new buzz words for the New Year.


Wed, 01/04/2012 - 11:06 | 2032610 Pemaquid
Pemaquid's picture

Maybe off topic but a friend gave one of the banks (through a broker) all of his savings, amounting to $600K and they promised he could choose any stock(s) and/or bond(s) but is guaranteed a minimum 5% return. When he told me about this I became very suspicious. Am I being overly distrustful?

Wed, 01/04/2012 - 12:01 | 2032833 LawsofPhysics
LawsofPhysics's picture

No, they will do it and real inflation will be 24-30%.

Wed, 01/04/2012 - 18:36 | 2033874 malek
malek's picture

No no no, the bank will gladly pay him Tuesday (5% return) for a hamburger (all his money) today!

Wed, 01/04/2012 - 12:42 | 2032975 Snakeeyes
Snakeeyes's picture

Last year, Chris Whalen wrote a post for Zero Hedge where he cited research I had done. Here it is.

He called the post

The Sanders Polynomial or Why “Esto se va a poner de la chingada”

I updated that chart that shows the MBA Purchase Applications on a steady downward trend. The MBA released their numbers this morning and we are STILL in the downward trend.

Look at the MBA Purchase chart which is the fourth picture down. Supports Gross point pretty well.


Thu, 01/05/2012 - 00:53 | 2034614 EZYJET PILOT
EZYJET PILOT's picture

He doesn't mention Re-hypothecation. 

Thu, 01/05/2012 - 02:57 | 2034717 EZYJET PILOT
EZYJET PILOT's picture

Why the hell is Bill Gross complaining about ZIRP, without it these corrupt finance institutions would be in far worse off shape and he knows it. It is affecting the average Joe far more than anyone else. Even if interest rates for banks are .25%, the effect off higher interest rates on all of their debts would be crippling to these monsters so as usual its the best compromise for dimon, blankfein etc. Like I said above the banksters have resorted to more colourful forms of embezzelment now in the form of re-hypothecation, not to mention all of the secret fed handouts which is ongoing. We always have newsletters from these types of people that deal with mainstream facts and figures, they ignore the shadow reality.

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