Posted on 03/09/2011 12:27:54 PM PST by gregd0180
And many thought Bill Gross was only posturing when he said he is getting the hell out of dodge. Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since. And while we expected that the spike in MBS holdings (at times on margin) was indicative of an expectation that QE3 would monetize mortgage backed securities, the ongoing decline in that asset class now leads us to believe that Bill Gross is now convinced there will be no QE3 at all, at least based on his just putting his money where his monthly pen is! And if Bill Gross, the most connected person to the upcoming actions by the Fed, believes there is no more quantitative easing, it is really time to get the hell out of dodge in all security classes - bonds, and most certainly, equities.
Note the plunge in Treasury holdings in the chart below (blue line), offset by the surge in cash (dotted pink line). Time to panic.
[...]
(Excerpt) Read more at zerohedge.com ...
“If PIMCO’s Gross was expecting deflation/ie lower int. rates...would he not have held onto the bonds?..........Bonds go up in value as interest rates decline in a deflationary environment...”
Interest rates are close to zero right now. They cannot go any lower. That’s why bonds have been such a nice investment for the past two years. The Fed has lowered interest rates so low that bond prices have gone up. The reverse will be true also.
Roubini was one of the people being interviewed when Caruso-Cabrera gasped “You can’t just sit in cash! You have to buy *something*!”
Roubini suffers from the same affliction as most economists: they’re sometimes great on theory, but they know jack-all about actual markets. This is why economists come up with twaddle like EMH on the one side, and Keynesian “stimulus” on the other.
Gross cannot enter the market, if by “market” you mean the market for equities.
He indicates he will get back in bonds if rates go up 1.5% or so (of course, by the time rates climb that much, he may think they need to climb even more for bonds to be at fair value).
My question is... if you have PIMCO bonds in your 401k, should you just leave them alone since Gross has made this move to protect them? Or should you transfer those bonds into money markets?
bump for later
I assume you misspoke. The Dollar will not increase in value as the federal deficit goes up even more. It will decrease in value because the fed will have to print more dollars to keep paying the debt.
I simply cannot see your argument for deflation. The money supply will have to drop for deflation to occur. But what the dickens do I know? Not much!
“Should I sell every US Treasury Bond I have?”
None of us know the answer to that, no matter how much we pontificate. If we did, we would not be posting on FR. We would be somewhere else making a billion dollars. Of course, that is what Gross is trying to do. Nevertheless, following Gross is a loser’s game. By the time you know what he did, it’s too late. For all we know, he is already back in bonds (admittedly very unlikely). He certainly will not tell us he is getting back in until he’s already in.
BTW, I doubt Durden’s assumption that “Bill Gross is now convinced there will be no QE3 at all.” The risk in bonds and mortgage backed securities has been growing more apparent all along, while the Fed bought bonds.
*
House of Saud money murdered 3,000 Americans on 9/11 and is used to export Islam to the west and to build mosques in teh West. You sound like a puppet who works for a saudi funded think tank or other group. Hopefully the house of saud will get what they deserve soon.
Hopefully the Saudi Sunnis will get to take on the Shia and get what is coming to them.
CNBC is Obama and Wall Street propaganda like all TV. Fox and Bloomberg are no better. Idiot box.
What would be the best deflation plays? T-Bills? Short Term Treasury bonds?
Ah yeah. Too many people here think this is Carter II. “It ain’t.” It is probably the bankruptcy of America. Keep watching TV cause all of TV including Fox supports the muslim who is destroying america.
I’m too busy reading and absorbing to argue. This whole thing has thrown me for a loop. I’ve been buying physical silver with both hands for more two years now, anticipating inflation. I’ve done well, but now I have to decide if it’s time to cash out.
Before today, the thought never crossed my mind. This is all more than a little bit jarring.
Ping for later ........................ FRegards
Rising interest rates are good for financial institutions. Not their products, the companies themselves.
Perhaps selected foreign equities (ADR) or cash (bonds) outside the euro zone: Canada, Australia, Sweden, Switzerland, Denmark, UK. These would be hedges against euro or greenback inflation.
Mutual funds in the above sectors are not recommended.
yitbos
“My question is... if you have PIMCO bonds in your 401k, should you just leave them alone since Gross has made this move to protect them? Or should you transfer those bonds into money markets?”
For what it’s worth, I do not plan to sell my PTTRX. I would have in a month or two had Gross not dumped treasuries.
Thanks for explaining. You said “China is really pissed off because, other than the Federal Reserve Board, they are the largest holder of US Treasuries.” Do you think that this is a precursor to Beck’s prediction:
“Glenn Beck – 15 Days of Economic Collapse
Day 1 of Glenn Beck’s scenario begins with China announcing that they will no longer buy U.S. Treasury bonds. This is not such a far fetched idea, as they have certainly slowed their rate of bond purchases and have voiced public criticism of Ben Bernanke’s announcement this week of a second round of quantitative easing.
Day 2 and 3 focuses on Wall Street which gets ’spooked’ by China’s announcement. The volume of stock sales is ultra low as rumors of instability abound. By Day 5, the world begins to react. Markets in Asia drop 10%. The American and European markets also decline a like amount. The European Central Bank reacts quickly, raising interest rates to attract capital as investors seek a ‘flight to safety’.
Day 7 of Glenn Beck’s scenario has the U.S. stock markets closed while the Federal Reserve Board holds an emergency meeting. Needless to say the government is certainly participating in decisions during the next 48 hours. With some vague pledge of ‘a plan’, the markets reopen on Day 8. They may even rally a bit, gaining 500 points or so. On Day 9, things seem to be stable.
Day 10 and the U.S. Dollar loses 10-15% of it’s value! The Fed’s quantitative easing has pushed a sudden burst of inflation as global banks try to divest themselves of the reserves of dollars. How possible is this? Again, following Bernanke’s statements on Wednesday, financial leaders in China, South Korea and Thailand have already said this week that they will act together, in concert, to protect themselves from a devalued dollar.
Day 11, the Fed meets again. On Day 12, in Beck’s scenario, the Fed decides to follow the Euro Bank’s move of increasing interest rates. Far from securing stability and confidence, the sudden change in direction by the Fed has the opposite affect.
Day 13, Lucky 13 — GLOBAL MELTDOWN! All of the world’s market begin to crash as confidence in ‘The System’ goes out the window. It’s every man (and lady) for themselves! The value of all paper securities, be they mortgages, stocks bonds, currency, is questionable. The markets go into total free-fall, losing perhaps 20% or more in a single day.
On Day 14 of Glenn Beck’s scenario, the IMF (International Monetary Fund) and the G20 financial leaders meet. In a televised, joint announcement, they announce an emergency plan to restructure all ’sovereign debt’, the debt held by each nation. Perhaps even a new currency or basket of currencies for global trade to replace the U.S. dollar. The beginning of the New World Order.
On Day 15, the public begins to panic. In the past two weeks, the value of their currency has declined some 20% or more. The cost of food, oil, etc, has jumped. Bank runs are televised as people get whatever cash they can and buy whatever is available from the shelves of grocery stores. The entire nation is behaving as if a hurricane is approaching. ‘The System’ is utterly swamped.
Glenn Beck’s scenario for economic collapse is not all that far fetched. In polls taken earlier this year, more than 70% of Americans believe that things could get much worse. That another economic collapse could happen. As I wrote earlier today, a high-ranking finance official from China, Xia Bin, warned yesterday that the Federal Reserves plan for a second round of quantitative easing would not work and could lead to another collapse. Both of Glenn’s guests, authors Damon Vickers and Brad Thorn agree that the scenario is a very possible one. Beck said that during the course of researching his latest book, “BROKE”, some of the 30+ economists he talked with think that even 15 days may be optimistic. A sudden crash could happen in 3 days from an event such as China ending it’s purchase of U.S. bonds.”
http://www.rightpundits.com/?p=7626
“I assume you misspoke. The Dollar will not increase in value as the federal deficit goes up even more. It will decrease in value because the fed will have to print more dollars to keep paying the debt.”
Nope. At least short term, if US interest rates go up more than other interest rates, that usually drives the dollar up. Higher interest rates mean more investors buy dollars to purchase US denominated fixed interest investments.
You are assuming the fed will continue to print money. One of the investment hypotheses that explains Gross’ actions is that he knows it will not continue to monetize the deficit.
“I simply cannot see your argument for deflation. The money supply will have to drop for deflation to occur. But what the dickens do I know? Not much!”
Way back, I was taught that inflation/deflation depends on money supply times money velocity. My understanding now is that money velocity is super low. I also believe that housing, equities, long term bonds, mortgage securities and commodities are still grossly overvalued because Zero and the Fed have been frantically blowing up the bubble that tried to pop in 2008. Once the downward cascade starts with deflation, velocity drops even further because, if you hold dollars, they will be more valuable next week than if you spend them today.
The federal deficit is the problem this all revolves around. If the fed stops monetizing the debt, the Treasury will have to put out real bids and get real money from real investors by selling treasuries in unfixed auctions. That will drive up interest rates quickly. You have a 1.4 trillion a year monster that has to increase it’s borrowing by that amount every year. With no QE, to the sky interest rates.
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