Skip to comments.PIMCO (biggest bond fund) Dumping All Treasuries, Bringing "Government Related" Holdings To Zero
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 ...
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.
“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 Becks 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 Bernankes announcement this week of a second round of quantitative easing.
Day 2 and 3 focuses on Wall Street which gets spooked by Chinas 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 Becks 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 its value! The Feds 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 Bernankes 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 Becks scenario, the Fed decides to follow the Euro Banks 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 worlds market begin to crash as confidence in The System goes out the window. Its 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 Becks 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 Becks 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 Glenns 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 its purchase of U.S. bonds.”
“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.
Gross is getting out because the dollar is going to devalue sharply sometime after June 30th, which is when QE2 is supposed to end - but will not.
Keep your silver! Do not be shaken out. There will come a time to sell it, but that time is not yet: the price of silver has a long way to go.
Any FReepers in cash or bills, sell them and buy physical silver.
How Gross would protect his PIMCO investors from a dollar melt isn't obvious. He's not running a precious-metals fund, so he would probably run to tangible-asset-rich equities if he thought the dollar was at risk, and equities with lots of overseas income, like Coca-Cola and MacDonald's.
He's running away from debt, not dollars, suggesting that he's expecting a big interest-rate shock, i.e. a cessation of QE.
The threat is to interest rates, not the dollar. Or so his actions would suggest.
If Gross thought that, he'd have done the opposite of what he did. He'd be running toward Treasurys instead of away from them, Treasurys and cash.
But he wants just cash instead. Going short-term + cash and dumping Treasury debt means %'s are headed up, Treasurys and equities down, like the article says.
Gross's move if correct also implies, dollar up, foreign currencies and precious metals down.
If our money falls in value compared to the rest of the world, there will be *NO* cheap Chinese stuff, only expensive Chinese stuff.
Kinda like the Asian flu of 2000. The Korean won went from 800 won to the dollar to 3000 won to the dollar. Only it’ll be the dollar as the ‘won’ against the Chinese yuan (ie: dollar).
Fortunately, America is a large country that can grow it’s own food, has automakers, and can produce much of all we need, as long as the government and it’s regulators don’t get in our way. Combine that with a worthless dollar and the only thing we’ll be able to afford is American products, imports being too expensive. So that ought to get more American’s back to work.
That, and our currency will make our goods cheaper for the rest of the world to buy. (in other words, we’d be the next China for investment)
But like I said, that requires our government to get out of business’s way.
I agree with agere,
A lot depends on where you think our country is headed. If one thinks the collapse of the dollar is coming, the last place you want to be is in dollars. You want to be able to use your silver/gold to purchase whatever the new currency will be.
... and then on Day 16, those that didn’t panic then use the money they have to buy everything that the panicking fools sold for pennies on the dollar.
Day 17 onward then is spent rebuilding, with all the profits going to those that bought on Day 16.
Hmmm, then it’s probably a good thing that I didn’t renew my pre-crisis CD at the superlow interest rates.
Thank you for this very interesting explanation. Is any of this intentional or is this a system that is just out of control due to the use of incorrect financial principles?
olrtex wrote: Of course, Gross now has a huge interest in bonds dropping like a lead balloon. He could easily be trying to drive bonds down so he can swoop in when they reach the basement.
..... You MIGHT be right. But on the other hand maybe a cigar is just a cigar, as Groucho once put it, and Gross has simply lost faith in US treasuries as an investment vehicle. PIMCO may represent the world’s largest investment bond fund, but its holdings were far from the world’s largest position in US treasury bonds. That distinction, as I understand it, is held by the US Federal Reserve, which recently surpassed China. The Fed and China alone jointly hold about US$ 2 trillion in US treasuries. After that, there are the Europeans, the Arabs, and a legion of other investors both private and governmental. I’m not sure that PIMCO’s treasuries position was large enough to meaningfully manipulate the market, especially when a couple of hundred billion in US treasury bonds goes to auction every month. If I’m wrong on this perhaps some better informed Freeper here can educate me.
The important questions I’m asking in this situation are -
Why is the US Fed such a large holder of US treasuries?
Answer - No one else is willing to buy them in the necessary volume, which means that “supply” is exceeding demand, which in turn means that the global investment market does not have the appetite to buy US debt obligations at the rate which it is currently being created.
Where does the Fed get the money to make such purchases?
Answer - they simply create it out of accounting legerdemain and thin air.
None of the above gives me any degree of comfort. That being said, what is any sane person, including Gross, supposed to do if he believes in an impending collapse in the value of an important portfolio holding?
Answer - Sell.
Sometimes a cigar is just a cigar.
I did notice this morning, while tuning into CNBC, that the Thursday countdown clock for the weekly unemployment stats was missing. Santelli didn't get a whole lotta time, though what he got he put to good use :) And I wasn't watching all morning, but while I was I saw nothing about the Pimco story.
Ain't that the friggin truth. Never seen anything like it 'round these parts.
Tabitha Soren. Don't know if you were around then, but this chick turned EVERYTHING into an abortion argument.
Laz: Hi Tabitha. I hope you are well today.
Tabitha Soren: Well, I'm fine. But you know who's NOT FINE??!?? THE 78 MILLION ABORTED FETUSES, DISCARDED AND BLEEDING IN GARBAGE CANS!!!!!!!!!!!111!!!
Laz: Ew. Disgusting. Say, have you seen that new TV series, "Two and a half men"?
Tabitha Soren: The only HALF MEN I KNOW ARE THE *ABORTED* *MALE* *FETUSES* all KILLED and being PICKED AT by the VULTURES OF THE CULTURE OF DEATH: ABORTIONISTS!!!!111!!11!
You have jumped off a conclusion cliff
No, she may have been before my time, or perhaps I was a newbie and didn't notice her.
Apparently, it's the same mental illness, though. That poster can't go more than a couple of posts before his obsession with TV takes over.
Thing is, he's got a valid point, but he posts it over, and over, and over, and over, and over, and over, and over, and over........
Doesn't matter how many times you tell him, "We GOT it!" He just keeps on repeating it, like a parrot.
I’ll remind him that “his record’s stuck.” :)
You can say that again.
I was doing that for a while, every time I ran across one of his 'recordings', but it did no good. I don't think he has any control over it, know what I mean?
Hyperinflation is the game they will play in order to inflate their way out of debt.
There seem to be three schools out there:
1) QE2 ends, no QE3 (deflation)
2) QE2 segues into QE3 (inflation/hyper inflation)
3) QE2 ends, followed by some short term pain in the markets/commodities, thus bolstering the case for QE3 (short-term deflation, long term inflation/hyper-inflation)
Scenario #3 seems the most likely when you weight the political implications. Obama gets his crisis and he gets to play savior with a new bull market to show for it heading into 2012. Then again, if you listened to Goolsby last week, he was deliberately setting up the ME as the fall guy for whatever downturn might be ahead. With a built-in excuse, they could be free to wreck as much havoc as their demonic little hearts desire. Lord knows their voters are dumb enough to accept any excuse they’re given.
I really don’t know. I’m probably going to start hoarding cash to keep my physical company in the safe until we get a better handle on where we’re headed. And keep buying the dips in Ag along the way.
Tabitha Soren, the old MTV News chick?
Is this why the market dropped today?
Is this why the market dropped today?
Is this why the market dropped today?
“Personally, I believe the US Taxpayer will repudiate the US Debt. Still, it’s better than holding stocks...same as treasuries.”
Thanks for your reply! I wish I understood it...Are you saying that taxpayers will avoid buying treasuries? And are you saying that savings bonds are better than stocks or treasuries?
“...but while I was I saw nothing about the Pimco story.”
Typical General Electric (scum company) CNBC propaganda. ALL TV is garbage and CNBC is a total joke.
Bill Gross is a very sharp guy. I knew PIMCO when they were a small part of Pacific Life. Germany’s Allianz bought them and Gross got a very sweet deal.
Allianz is also very sharp. This is vote that Germany thinks America’s political situation (the muslim)is a joke. The Dems screaming about cutting $61 billion in spending is a joke. The USA right now is a joke.
Marc Faber, Jim Rogers, James Grant et al are saying basically the same thing.
...but from what I've seen: SSDD.
No. I am saying that the taxpayer, at some point will refuse to pay the debt. Will in fact default.
The "new regime" could decide to pay all (extremely unlikely), a portion or none of the previous debt. That debt includes Treasuries, I-Bonds, Savings Bonds etc.
The most likely long-term scenario is the US Government (US Taxpayer) completely repudiates all debt.;..since there's not enough money in the whole friggin' world to ever pay it. And, eventually, when interest rates increase to 7-10% on the 10yr issue...10-12% on the 30yr issue...we won't even be able to afford the INTEREST on that debt.
Of course the above scenario assumes we continue to accumulate debt beyond the current $14trillion...a certain scenario.
Here’s another one. I don’t see anything new of substance from the Fed. The left fears high oil prices and slow revenues while continuing to talk about the funny current recovery.
Fed Giving Credit Markets Clues on Path to Exit From Unprecedented Easing
[Title and link only, no content from Bloomberg should be posted on FR.]
No. China is just really pissed off. If they announce “no more UST,” what does that do to the value of the T-Bills they are holding? > 700 billion dollars. That’s an expensive temper tantrum.
The bigger danger is China has to start liquidating T-Bills to pay for food and oil. Maybe the Fed will just buy them up and keep interest rates down. But that is the ultimate losing trade for the fed. Interest rates ARE going up sometime and a lot. At that point, the Fed is bankrupt because treasuries will plummet.
If only Zero hadn’t run the deficit up to $1.5 trillion, we would be sitting in the cats-bird seat as against China right now. As it is, we are in a mutual suicide pact with them and the Fed really has no wiggle room. It’s only two options are to let rates go up, with all the consequences, or to continue to fund Zero’s deficit by buying T-Bills.
“But he wants just cash instead. Going short-term + cash and dumping Treasury debt means %’s are headed up, Treasurys and equities down, like the article says. Gross’s move if correct also implies, dollar up, foreign currencies and precious metals down.”
I agree with this analysis completely. What I don’t understand is why Gross is so certain of the interest rate move, given that the FED probably has more time in which it can still control interest rates thru monetization of debt. How does he know that the FED won’t continue trashing the dollar with monetization? This is a huge reallocation in something the size of PIMCO. And, a huge risk of under-performing other funds if he is wrong about interest rates.
As we discussed years ago: as predicted it is coming to pass.
I wonder if Mayans 1,500 years ago, Nostradamus 500 years ago and other prophecies could smell Oba-Hussein in December 21st, 2012 based on which they have predicted End Times?
Sure feels like it as we watch events triggered by him and urged on by his puppet-masters unfold into cataclysmic disaster.
Good Nostradamus TV show last night went into the scientific backing to these predictions.
BTW a practical sidebar:
If a portfolio is beating inflation, tinkering on the edges is all that is necessary.
Gross said this morning that he still has short term treasuries (12 mos. and less); the fed has kept interest rates 1%-1.5% lower than market. He likes emerging market bonds, including Spain and Portugal.
If Americans can’t buy Shina’s crap, who will? If Americans can’t afford something made by someone working for $.10 per day, how would we afford things made by Americans for $100+ per day?
It wouldn’t work.
And here’s the video!
From “The Man Who Saw Tomorrow”, starring Orson Wells.
Anyone who has not already seriously started perparing for hard times better start making lists today and start shopping etc this weekend.
Seriously. Stuff’s already getting much more expensive and crappier.
What’s ahead will make the fall of Argentina look like child’s play, imo.
Agreed. Due to market fluctuations and propaganda for special interests, though, such an economic fall can be like a hurricane (typhoon) or tsunami. Many of those inexperienced or uneducated in such disasters won’t know that it’s severe, until they’re drowning.
It could be "both". First an attempt to force down interest rates and inflate the currency leading to speculative inflation with that followed by a deflationary collapse. It is not only a question of what is next, but what "ultimately" will happen in the event of a total collapse. A deflationary recession/depression is my expectation as a end outcome of a total financial meltdown.
Must that be the outcome? NO. Here is flaw in all of this, the foreign countries are in worse shape than we are. What or who is driving this assault on the U.S.? Now that is a question. It is much larger than George Soros. It is much larger than the Bank of International Settlements and it is much bigger than the Saudi's. Has anyone defined it? Not that I know.
Sure feels like it as we watch events triggered by him and urged on by his puppet-masters unfold into cataclysmic disaster.
And so it goes... Obizmpo has droped any pretense of stopping Iran’s quest for nukes... many cheers in Tehran...