Skip to comments.It's Over: PIMCO's Bill Gross Declares That The 30-Year Bull Run In Bonds Is Coming To An End
Posted on 10/27/2010 8:56:49 AM PDT by WebFocus
Bill Gross of PIMCO has attacked quantitative easing as a "Ponzi Scheme," and charged the American public and our politicians, not Ben Bernanke, with fault.
"The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need as with Charles Ponzi to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme you and I, and the politicians that we elect every two years deserve all the blame."
While Gross isn't sure if QE 2 will work due to our liquidity trap predicament, he is sure who to blame for getting us into this mess. Gross targets the politics of the country at large.
"Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isnt a choice between chocolate and vanilla folks, its all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath."
(Excerpt) Read more at businessinsider.com ...
I’m not returning to the markets until I see some action towards the rule of law.
The criminals are still in charge and I don’t trust them.
LOL! Boy that was a gutsy call. (sarc) The TIPs have a negative yield.
You are better off then buying ETFs for foreign markets or international funds.
There is no rule of law in America. Just idiots watching TV and being brainwashed 24x7.
Don’t expect there to be a rule of law in America again.
As I recall, this @sshat was all-in for Obama in 08
People will not be prepared when interest rates move, and we get back to the mean.
They will go much higher than average for awhile to get us back to the mean rate historically.
Maybe similar to what home prices have done.
Doesn't this comment tell you where this guy is coming from?
Since the 2008 Crash, investors worldwide have generally shunned equities in favor of the perceived safety of the bond market. Nowhere is this more apparent that in the retail investor market, where investors have pulled money from stock based mutual funds for 23 weeks in a row, while they’re on pace to pile some $300 billion into bond funds this year (on the heels of a record $350 billion in bond fund inflows from last year).
This trend in the retail investor market is largely based on fear of stocks (two bubble and subsequent Crashes in ten years will do that) and demographics (the aging boomer population, now punished by a Federal Reserve hell-bent on keeping interest rates at zero, is ravenous for income to help them move into their delayed retirement).
On the surface, this sounds pretty good. After all, stocks haven’t returned anything in ten years. In fact, adjusted for inflation, they’ve LOST money over that time. Plus bonds DO offer the appeal of definite income compared to stocks ,which often don’t pay ANY dividend or can experience large dividend cuts due to management screw ups or phony accounting coming home to roost.
However, the numbers don’t lie, we are most assuredly in a bond bubble. According to data compiled by Bloomberg and the Washington-based Investment Company Institute, investors have put almost as much money into bond funds in the two years ended June 2010 ($480 billion) as they did in equity mutual funds at the height of the Tech bubble from 1999-2000 ($496 billion).
And the insanity is literally across the board.
Treasuries are trading at levels not seen since the depth of the 2008 Crisis. We just had a TIPS auction close at a negative yield for the first time in history, meaning investors are willing to LOSE money just to park it with bonds that supposedly adjust for inflation (TIPS adjust based on the CPI which is nowhere near the REAL rate of inflation... see tomorrow’s essay for more on this), and US corporations have ALREADY issued $217 billion in junk bonds this year, even HIGHER than last year’s RECORD.
In plain terms, weve got a bond bubble of epic proportions on our hands. And if you think a stock market crash is something to behold, wait until the bond bubble bursts.
Remember, weve been in a bond bull market for well over 30 years. And while stocks have experienced at least three Crashes during that time (1987, 2000, and 2008), bonds have generally done nothing but go up over that period.
Because of this, there is an entire generation of professional traders/ analysts/ fund managers who have never invested during a bear market in bonds. These folks have made their entire professional careers investing with the basic understanding that debt is cheap and bonds overall move higher.
Can you imagine what kind of impact a bond market collapse (and higher interest rates) would have on these folks? Their trading programs and algorithms were created decades AFTER the last bear market in bonds ended. They are totally unprepared for this.
As was Warren Buffett...
Hey, who do you think will win Dancing With The Stars?
Speaking of TIPs, I've got a question: What if the gov't lies about the inflation rate...?
“Hey, who do you think will win Dancing With The Stars?”
After gleaning much on a serious financial thread, I ran into your gem of a comment! LOL
Wow, that's naming names, boyo!
What a useless analyst. The firetrucks start arriving, and he finally gets around to pulling the TIPS fire alarm.
How much you wanna bet this dork is a Democrat supporter?
Yeah, when you see who I was responding too...
It sums it up for me. I haven’t had TV since 1997 and it has really allowed me to see this stuff in a way that most Americans don’t. It is why I say I see the world today as an equivalent of August of 1939. It’s actually very obvious.
I am really trying to change my investment choicess in my T Rowe Price 401k before I cash it out. I’m all in with bonds and want to shift to commodities. But there is no such choice. All of the choices are some form of stocks, bonds, or a mix.
If I can’t get into commodities, I really need to just cash the thing out.
What do you mean what if? They already do lie about inflation they took the things that you really need to live out of the inflation numbers, things like food.
A Quick Glance At Real World Inflation
Considering that PIMCO is the biggest private bondholder in the world, yes. He is, in effect, telling people to dump his company's product.
There are much better buys than TIPs, because the U.S. government can't be trusted to keep score. A broad-based commodity ETF with low costs would be good here. Holding euros is no good, as Germany won't carry the rest forever. Yen are a bit better. U.S. stocks and real estate will both get slammed as interest rates rise. If it happens significantly in 2011, when the bulk of the remaining teaser rates get reset, real estate could drop more than 15% more.
Bill Gross has added value for the last 30 years buying bonds for his customers. His business model is now dust. At least he isn't hyping it up until the last sucker is lured in.
Yeah, I know. But seriously, why would anyone buy these things, the TIPs, when the gov is deciding what the inflation rate is? Isn’t it in the gov’t’s interest to lie through its teeth, especially since lying doesn’t seem to be a problem for this particular admin? I don’t see the appeal, so what am I missing? :)
I agree with him 100%. Everyone wants lower taxes, but at the same time this entire country has a pathological aversion to actually cutting government programs that are the biggest contributors to our massive spending problem.
Anyone who runs a political campaign and is honest enough with the voters to tell them that we simply cannot afford Social Security and Medicare would be lucky to get 20% of the vote in any given election.