Will be interesting to see how China and Japan will respond.
Bill Gross Dumps All Treasuries, Brings Total "Government Related" Holdings To Zero
- Thread starter Stok
- Start date
Will be interesting to see how China and Japan will respond.
I wouldn't want to invest with a US bond manager that's levered a cash position. I see no good reason why anyone else would either.
Besides that, Gross has completely misunderstood the macro dynamics that are at work at the moment in the United States. Low interest rates are a phenomenon that's here to stay. The natural interest rate for any fiat currency is 0% and the dollar is naturally diverging towards this rate absent any government intervention.
If Gross wants to short the long end of the yield curve he should look to Germany and Eastern Europe, Japan, South Korea and China. That's where capital formation is concentrating and where governments are or will be pushing up interest rates to increase the concentration of capital.
Any interest rate above 0% is the result of government intervention.
Besides that, Gross has completely misunderstood the macro dynamics that are at work at the moment in the United States. Low interest rates are a phenomenon that's here to stay. The natural interest rate for any fiat currency is 0% and the dollar is naturally diverging towards this rate absent any government intervention.
If Gross wants to short the long end of the yield curve he should look to Germany and Eastern Europe, Japan, South Korea and China. That's where capital formation is concentrating and where governments are or will be pushing up interest rates to increase the concentration of capital.
Any interest rate above 0% is the result of government intervention.
lol. now that you have schooled bill gross on how to run a bond fund i am sure he will appreciate it.
Actually China absorbed the whole supply that came to the market as a result of PIMCO's sales of Treasuries.
There is an interesting discussion in Cullen Roche's blog about that sale
http://pragcap.com/bill-gross-sells-us-government-bonds-does-it-matter
What? You do realize that the rate of interest is absolutely tied to risk? Absent government intervention interest rates would be rising, not falling. Risk of holding dollars is on the increase, not decrease. That's the whole purpose behind QEI, II, and III should it occur. The Fed is FORCING interest rates down by buying US debt. The interest rate is inversely correlated to the price of the instrument so if you artificially inflate the price of the instrument -- QEI, II -- the rate artificially falls. Absent this activity the rate naturally rises to the point of equilibrium based on supply and demand. If Gross is getting out it's because the artificially low rate will soar when QE is yanked, giving him a great opportunity to buy treasuries at a later date. Gross ain't no dummy. If this is truly happening I would pay close attention to it. Rising rates are generally quite bearish for equities unless growth and rates reach a sustainable equilibrium, which I doubt they will because of the recent market manipulation.
The rate of interest is not absolutely tied to risk when it comes to government debt. Governments which issue currency do not have to rely on debt to fund themselves. Just think about it, if you could issue your own currency would you need some other party to lend that currency to you? Of course not. Government debt is really a drain on bank reserves. The government is able to set rates regardless of the markets perception of risk. QE is a programme that tries to achieve this, but fails as the programme is tied to a specific quantity. If they'd drop the quantity requirements and just use as much funds as it would take the Fed would be able to set any rate it wants. This is how they set the interest rate during WWII for example.
An alternative to this would be to simply stop issuing debt. Doing so would set the rate at 0% instead of x%. This is why I stated that the natural interest rate is 0% in a fiat money system. Government intervention is the issuance of debt itself, as it is a method of manipulating bank reserves and not a way to access funding.