The Bernanke Chicago speech became little more than a side show Friday. He did say the Fed was keeping a watchful eye on yield risk-taking given ZIRP. He’s a little late to that observation methinks.
Bill Gross Tweets "Bond Bull Market Dead" Even As PIMCO Loads Up On Most Government Bonds In Three YearsSubmitted by Tyler Durden on 05/10/2013 12:08 -0400
The blue line in the chart below? That's the total holdings of Government (cash and derivative) securities of PIMCO's flagship $293 billion Total Return Fund. At a net exposure of 40% of total fund AUM, or roughly $117, PIMCO has not been more bullish on Treasury and Agency securities since July 2010, when Gross was selling into the QE2 Jackson Hole preannouncement panic. If also is the first time since the summer of 2010 that the fund holds substantially more government-related securities than MBS. Why is this notable? Because moments ago, Gross used his now favorite public service distribution medium, twitter, to announced that "The secular 30-yr bull market in bonds likely ended 4/29/2013." Uhm. No.
Gross: Central bank credit & hope for real growth drive risk markets. Both must continue to support current prices.
— PIMCO (@PIMCO) May 8, 2013
Currently, central banks around the world are walking in lock step down a dangerous path of money creation. Led by the Federal Reserve and the Bank of Japan, economic policy is driven by the idea that printed money can be the true basis of growth. The result is an unprecedented global orgy of currency creation. The only holdout to this open ended commitment has been the hard money bias of the German-dominated European Central Bank (ECB). However, growing political pressure from around the world, and growing dissatisfaction among domestic voters have shaken, and perhaps cracked, the German resolve. While German capitulations in the past have been welcome occurrences, in this instance the world would be better served if the Germans could stick to their guns. However, it seems presciently, that the ECB is looking for ways around Germany's oppostion to outright monetization by securitizing SME loans and buying ABS directly on to their own balance sheet.
Gross: Dow hits 15,000 & PIMCO’s internal Corp & Hi Yield Index hits all-time yield lows. Thanks Chairman #Bernanke! Got any more?
— PIMCO (@PIMCO) May 7, 2013
Gross: World awash in money. Fed buys 85 billion per month. BOJ 75 billion. ECB hints at neg interest rates. Don’t buy – sell risk assets.
— PIMCO (@PIMCO) May 2, 2013
“… current policies come with a cost even as they act to magically float asset prices higher…, a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing." Bill Gross, PIMCO
The highlights from Bill Gross' monthly letter: "The past decade has proved that houses were merely homes and not ATM machines. They were not “good as money.” Likewise, the Fed’s modern day liquid wealth creations such as bonds and stocks may suffer a similar fate at a future bubbled price whether it be 1.50% for a 10-year Treasury or Dow 16,000.... if there are no spending cuts or asset price write-offs, then it’s hard to see how deficits and outstanding debt as a percentage of GDP can ever be reduced.... Current policies come with a cost even as they act to magically float asset prices higher, making many of them to appear “good as money”. And the take away: "PIMCO’s advice is to continue to participate in an obviously central-bank-generated bubble but to gradually reduce risk positions in 2013 and perhaps beyond. While this Outlook has indeed claimed that Treasuries are money good but not “good money,” they are better than the alternative (cash) as long as central banks and dollar reserve countries (China, Japan) continue to participate....a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing."
In his increasingly ubiquitous manner, the bond king has reduced his thesis to 140 characters, summed up in just two words... Sell Euros
Gross: Expect an ECB cut soon but will it lead to real growth? Doubtful. Euro needs to go down. Sell Euro.
— PIMCO (@PIMCO) April 23, 2013
It seems sometimes there is no need for a 300-page Powerpoint presentation.
"While I think this policy is fundamentally right, I think [austerity] has reached its limits," was EU President Barroso's firestarter comment yesterday. As the WSJ reports, the IMF also said last week that the bloc should ease back on austerity, while a number of governments outside the EU have made the same call, arguing that its belt-tightening is holding back the global economic recovery and could end up being self-defeating. Of course, the beggars are once again trying to be choosers as Spain's de Guindos pushes his agenda along this 'growth vs austerity' path, "What we are going to do now is strike a better balance between deficit reduction and economic growth," but it is the bagholders (or money-men) of Europe that has the last word. As we noted yesterday, Merkel's expectations are no more money without ceding sovereignty, this morning it is German MPs who are up in arms as Nobert Barthle condemns Barroso's statements on austerity and Hans Michelbach flatly rejects this path of no resistance as it "undermines fiscal consolidation efforts." Perhaps the most clear message was from Volker Wissing who added, "demanding more money or time would send a 'fatal' signal to financial markets on reforms." With German PMIs so bad this morning, we are reminded of Bill Blain's comment, that ultimately growth is about confidence - and right now, Europe is a very unhappy place.
"Tough Slog" or "The Unimaginable"
Gross: The world looks 4 a new Keynes but w/ hi deficits & 0% rates there is only a long tough slog ahead @ best & the unimaginable @ worst.
— PIMCO (@PIMCO) April 21, 2013
A Roundup of Opinions
The bond king is pissed:
GROSS: Fed’s secret Email list bothers no one it seems.I’ll give up my rant but remember it please.
— PIMCO (@PIMCO) April 11, 2013
Uninsured Deposits Could Be Used In Future Bank Failures Says Influential CEO Of Italy's Largest BankSubmitted by GoldCore on 04/05/2013 10:02 -0400
The CEO of Unicredit Federico Ghizzoni said yesterday that uninsured deposits could be used In future bank failures. He said that the savings which are not guaranteed by any protection or insurance could be used in the future to contribute to the rescue of banks who fail and that uninsured deposits could be used in future bank failures provided global policy makers agree on a common approach.