David Rosenberg Hints That Even PIMCO's Bill Gross Is Becoming A Deflationist

The Business Insider ^ | 6-7-2010 | Joe Weisenthal

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David Rosenberg Hints That Even PIMCO's Bill Gross Is Becoming A Deflationist

Joe Weisenthal
Jun. 7, 2010, 9:48 AM

In his daily note, David Rosenberg hints at a rumor that we hadn't seen before:

Maybe this is why Bill Gross was rumoured to be in buying long Treasuries late last week. It is never too late to change one’s mind, and secular trendlines offer all sorts of opportunities to do so. Imagine the labour market softening at a time when underlying inflation is running below a 1% annual rate. And, we haven’t even seen the full impact of the stronger U.S. dollar and the pullback in commodity prices hit home yet. If German bund yields are heading down to 2½%, make no mistake — Treasury and Canada yields are not far behind.

We highly recommend The Deflation Dilemma (page 18) and A Winding Path to Inflation (page 84) of the current Economist. The second article is particularly enlightening because it shows how ineffective a policy aimed at creating inflation will be because the bond maturity profile of most industrialized countries is short. Over half of U.S. government debt and 40% in Germany and France roll over within the next three years and so an overt policy to inflate away the massive public debts will be self-defeating if the bond vigilantes demand a higher premium upon refinancing time. Besides, an inflation-is-always-around- the-corner culture still permeates most central banks: the Bank of Canada hiking, the Fed district banks clamouring for a rate hike, the tightening moves this year by India, Brazil and China, as well as the refusal on the part of the ECB to go beyond shifting the composition of its balance sheet and actually expand it in a classic quantitative-easing style.

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PIMCO

The Pacific Investment Management Company, LLC (PIMCO), is an investment company and runs the Total Return fund, the world’s largest mutual fund.[1] Founded in 1971 in Newport Beach, California, with just US $12 million in assets under management at the time, it is now owned by Allianz, a global insurance company based in Munich, Germany, who bought the company in 2000.

[RexBeach]

Well, the concensus, just about everywhere, is that interest rates are going, up, up and up. After all, rates are very, very low, aren’t they?

It seems the more economists and analysts scream that bonds are in a bubble, the lower rates go, and the higher bonds price go(junk bonds excepted).

What does this prove? That the crowd may be wrong about rates.

I suggest that the Fed will keep rates low until employment begins to pick up. And that seems to be a way off.

We shall see. :)