Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

PIMCO Makes Massive Bet That Bernanke Will Create Inflation
The Business Insider ^ | 9-15-2010 | Joe Weisenthal

Posted on 09/15/2010 7:14:55 AM PDT by blam

PIMCO Makes Massive Bet That Bernanke Will Create Inflation

Joe Weisenthal
Sep. 15, 2010, 8:15 AM

The last time we heard from PIMCO, the gigantic bond house was back to buying long bonds, betting on deflation.

And we know that the firm's chief mouthpiece, Mohamed El-Erian has been warning about this scenario, pegging the odds at about 25% (it's not his base-case scenario, just a substantial risk).

But obviously this isn't the whole story.

The firm is also betting against deflation.

Bloomberg:

Bill Gross’s Pacific Investment Management Co. made an $8.1 billion wager that the U.S. won’t suffer a decade of deflation like the one that crippled Japan starting in the 1990s.

That’s the notional value of long-term derivative contracts tied to the U.S. consumer price index that Pimco’s mutual funds entered into during the first half of this year, according to a regulatory filing. The funds received $70.5 million in up-front premiums under these contracts, known as inflation floors, in return for agreeing to pay investors should prices decline in the 10 years ending in 2020.

This sounds similar to Warren Buffett's big S&P Index Puts -- betting in favor of long term stability -- raising cash upfront.

Anyway, this is a bet, for now, on Bernanke, that when push comes to shove, he won't let prices fall. Once again, they're shaking hands with Uncle Sam.

[snip]

(Excerpt) Read more at businessinsider.com ...


TOPICS: News/Current Events
KEYWORDS: deflation; inflation; pimco; recovery

1 posted on 09/15/2010 7:14:59 AM PDT by blam
[ Post Reply | Private Reply | View Replies]

To: blam

Stagflation. On the way.


2 posted on 09/15/2010 7:21:58 AM PDT by BenLurkin (This post is not a statement of fact. It is merely a personal opinion -- or humor -- or both.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

Actually, I think it’s more of a portfolio hedge. By their nature as a bond advisor, PIMCO is going to be holding huge amounts of bonds. An inflation hedge makes sense in their overall strategy.

Of course, I’d be willing to make the same bet myself, but that’s another story.


3 posted on 09/15/2010 7:23:44 AM PDT by Pearls Before Swine
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

I’m pretty sure we hooted down any PIMCO talk of deflation pretty loudly at the time.


4 posted on 09/15/2010 7:44:31 AM PDT by jiggyboy (Ten per cent of poll respondents are either lying or insane)
[ Post Reply | Private Reply | To 1 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson