Posted on 03/09/2011 12:27:54 PM PST by gregd0180
I don't know what else to say. The proposed "radical" cuts by the Republicans are equal to 1/4 of last month's federal deficit.
And they'll probably even cave on that.
Care to share your re-scope?
While I agree that is what the Fed and the Treasury are trying to do, inflate.
However they are moving against very strong fundamental currents. Wealth destruction has been enormous and all this new money isn't going anywhere besides the banks balance sheets to cover their earlier bad investments (now held mostly by the Fed) or into "safe" investments as the banks now see them.
If you believe inflation is going to roar up and bailout the holders of assets, that's a good reason to drop bonds...but even bonds are better than straight cash as a hedge against inflation. Cash pays nothing or very close to it.
However, if you expect massive deflation, cash is the ONLY place to be. It's real value accelerates in direct proportion to the level of deflation.
My deduction is thus: Gross believes cash would be better than US treasuries and he knows as much about the treasury markets that just about anybody. He wants to be liquid. Since all he can hold is bonds and cash...he doesn't have an option for commodities or equities...he hold cash.
Yes, he could be positioning for 8% on the 10yr bond...but I doubt it.
Some very astute people are starting to see massive default everywhere. Hell, the United States Government is going to default and Treasuries are CERTAIN to be worthless then.
Should I sell every US Treasury Bond I have?
Q.E. Money Printing Negative Feed Back Loop to Hyper-Inflation Oblivion
Yes, IMHO.
Whether inflation or generalized sovereign default, you don't want to be holding US Treasuries.
The are also a tough hold during a severe deflation as there will not be sufficient buyers to suck them up even at their original purchase price. The are an illiquid asset in severe deflation...but if you can hold on and the issuing government survives you did OK.
But not nearly as well as those who were holding cash. A 50% monetary deflation will drive some real things to greater than a 50% drop as the poison clears the system. Homes, farmland, businesses, capital assets of every sort will be cheap, cheap cheap.
Think 3-1 purchasing power...or potentially higher.
"We’ll have to wait and see what happens. A lot of FReepers think you should prepare for hard times."
I agree with this view and HAVE prepared for hard times. My fear is that when something does not happen shortly that people will become complacent. It may happen tomorrow or it may take a while but....bad things are going to happen.
So...Prepare now.
Good advice.
Don’t coount on that. Brokers and IA ‘s are for the most part salesmen that were able to pass an examination or two. Look at her holdings. I would have no more than 20% in dollar denominated bonds, 20% in domestic equities and the remaining 60% split up into foreign equities and commodities ETF’s or pools.
The Coming Rout (In Stocks, Bonds, Commodities and Precious Metals)
I agree.
But, I think it's too late...we're past the point of no return.
Deflation? Inflation? Either way will end with Americans rioting in the streets and perhaps a civil war.
Prepare now.
Thank you.
So, you think Gross is preparing for a bout of deflation?
BTW, I like the way you write, it's easy to read and understand.
“U.S. Living Standards Doomed to Fall”
Where’s Captain Obvious? Gross is simply stating what we have been seeing around us for a few years now. We didn’t need higher gas prices to tell us that name-brand foods are a thing of the past; people have been buying budget-brand groceries for years now at Wal-Mart (who have been kind enough to put in a frozen section by me). Wal-Mart will displace grocery stores as Americans flock to the “company store” to spend their inflated dollars on everything from food to cheap Chinese clothing to cheap Chinese tools to cheap Chinese toys. Our standard of living has been falling for over a decade, but it was masked by purchasing necessities with credit cards. The only difference now is the “company store” isn’t giving advances against future earnings that are looking more uncertain by the week...
Sorry to wake you up, Sleeping Freeper, but those shadows you see in the bushes are not bankers -- they are just rabbits.
Now that the "insiders" revealed that QE3 is coming, why don't you too bet on it?
Bet also on the "speculators" that drive up oil prices: you know that because of them the price is going up, so bet on it.
I know, I know, it's hard to think about these matters and even harder to study them. But, fortunately, you don't have to know anything: just throw those accusations around, defame people --- that'll surely make yourself look patriotic...
I hate everything he's saying, but I concur.
Your anti Saudi anti News Corp bigotry is illfounded
-——the value of U.S. government bonds will fall.-—
Does this not mean that there is a belief that interest rates on new bonds will rise
Should I sell every US Treasury Bond I have?
Ummmm...yes. Right now.
In the Carter years, economists said that we couldn’t have rising inflation AND rising unemployment at the same time.
Here’s the brutal truth: Economics is not a science, dismal or otherwise. They’re a bunch of mathematical BS artists who have been hoodwinking people and policy makers for centuries now. Left, right, center - doesn’t matter. They’re infected with a love of their own theories, which are almost invariably nothing more than a collection of loose statistical relationships from cherry-picked data over a narrow set of circumstances and time so as to not provide too many problems for them to resolve in their theories.
Been preparing since November 2008....have felt stupid at times....like a hoarder....but....I’m hoping we are prepared. Nor will I stop preparing either.
CNBC will be interesting tomorrow morning....
FWIW, we have.
Whoa there, slick.
When did you buy these Treasuries?
NB that Gross and PIMCO are constantly moving in and out of bonds, maturity of bonds, classes of bonds, etc. They have 10’s of billions of dollars that they have to move around every year based on bond portfolios rolling, etc.
If you set up a bond ladder of varying maturities and it is kicking off a good income stream, the only reasons to sell are because a) you were planning on selling the bonds at some future date and NOT holding them to maturity, or b) because you think the US government will default on those bonds the way GM did on their bondholders.
B4L8r
No it won’t. They’ll tell the girls to put on lower necklines and really frilly undergarments, tease their hair and act extra-perky.
CNBC cannot stand the idea of cold, hard reality.
Tomorrow’s Thursday. Santelli should be on to do the unemployment numbers. This just might come up as well :)
Yea, it might.
Then again, Steve Leisman will likely pooh-pooh PIMCO’s actions.
The only person who will shut down the programmed robot-like perkiness of the anchorettes would be Bill Gross himself.
Or Warren Buffett.
Yes, and one so serious that he doesn't think he can sell bonds at any price...because there won't be any "money" left to buy them when things pop.
Under inflation, the currency eventually becomes worthless.
In a severe deflation...even of the hosting government defaults...the currency can survive and become the new king.
If somebody had $1mil in 1930, they had $1bil in 1945.
Or Nouriel Roubini?
I *like* your idea immensely.
Cheers!
Let's argue!
Yes, and one so serious that he doesn't think he can sell bonds at any price...because there won't be any "money" left to buy them when things pop.
So...you don't think there will be a QE-3 or believe the talk about coming high inflation or hyperinflation?
Excellent use the cycle thing against her argument, brilliant. All previous governments have a cycle of rising and falling. May G_d have mercy on us.
Yes, I think there'll be a QEIII...or an attempt. But there are counter pressures to that as well.
Is the Fed will to buy the entire issue instead of just 1/2? I don't think they are. I think they know that would be criminal malfeasance even on their jaded terms.
The other potential, maybe more likely, is that the US Congress will soon prevent the ISSUANCE of that much debt...cut 'em down several 10% notches every time they talk.
The Fed has been buying everything in sight, by the ton. Those days are coming to an end.
Then, POP! Debt Deflation.
>>>>OK. This is a really, really, really big deal.<<<<
Correction. According to Vice Prez Bite Me, its a big F’N deal! ;)
What about savings bonds like I-bonds? Are they soon-to-be TP? Or would they come in handy during inflation since they are inflation-protected? Inquiring minds...Thanks!
“Would someone kindly translate this into english and advise?”
One of the smartest bond guys in the world has sold all US treasury bonds in the mutual funds he manages. His funds are, I think, the largest fixed income (bond) funds in the world. I believe his bond funds have held more in US Treasuries than any other bond fund in the world. US Treasury Bonds are how Zero finances the federal deficit.
If I interpret that move correctly, he thinks that the price of US Treasuries is going to fall. That means he thinks interest rates in the US are going up a lot. He has reached this conclusion for one of two reasons: (1) He thinks the Fed will not do a quantative easing 3 QE3; or (2) He thinks the fed will soon lose control of US interest rates no matter how much quantative easing it does.
Probable consequences if he is correct: An enormously increased federal deficit as interest carrying cost goes up. Dollar increases in value. Stock market falls a lot. Economy, already weak, slows down a lot. China is really pissed off because, other than the Federal Reserve Board, they are the largest holder of US Treasuries. Possible deflationary spiral as debts that are collateralized by US Treasuries and other fixed income default. Probable sovereign default by other countries as world interest rates increase in response to higher US rates and marginal countries cannot refinance the monies they already owe.
Personally, I believe the US Taxpayer will repudiate the US Debt. Still, it's better than holding stocks...same as treasuries.
Bill Gross Thinks This Recovery Is Not Self-Sustaining And That Our Low Savings Rate Is A Threat
"However, Gross says the biggest long-term threat to the economy is not one often mentioned: it's America's negative net savings rate of 1-2%. "Basically the U.S. is not saving enough money to replace its own capital from the standpoint of depreciation and potential investment," he says."
If it continues, this is a recipe for disaster, he concludes: "Ultimately a country can't grow that way going forward."
“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.
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