Bill Gross recommends front running Uncle Sam?

[TimeCorrosion]

I want to get some feed backs if possible:

"Perhaps the most striking example of the new demand dynamics for US Treasuries comes from Bill
Gross, who is co-chief investment officer at PIMCO and arguably one of the world’s most powerful
bond investors. Mr. Gross recently revealed that his bond fund has cut holdings of US government
debt and boosted cash to the highest levels since 2008.11 Earlier this year he referred to the US
as a “ponzi style economy” and recomended that investors front run Uncle Sam and other world
governments into government debt instruments of all forms.12 The fact that he is now selling US
treasuries is a foreboding sign."

This is taken from

http://www.sprott.com/Docs/MarketsataGlance/12_2009_MAAG.pdf

This means, as some other people like Peter Schiff recommended, short US T bill and dollar and long commodities like gold and silver?

 

[piezoe]

Interest rates have no where to go but up. It is a no brainer to be short bonds, it is only the timing that is unknown.

 

[risky63]

timing is what its all about.

 

[crgarcia]

Quote from piezoe:

Interest rates have no where to go but up. It is a no brainer to be short bonds, it is only the timing that is unknown.

What if they don't go lower?

What if another panic strikes?
Maybe due to commercial real state, and credit card defaults.

IMO this is more likely.
When stocks collapse again, flight to quality will bring bonds higher (at least for a short time).

 

[pspr]

The Fed will have to engineer low rates through 2010 to keep the mortgage rate resets (coming later in the year) from causing another real estate bust.

 

[piezoe]

Quote from crgarcia:

What if they don't go lower?

What if another panic strikes?
Maybe due to commercial real state, and credit card defaults.

IMO this is more likely.
When stocks collapse again, flight to quality will bring bonds higher (at least for a short time).

Well then, it's likely the Fed would delay raising rates. As I said, but you ignored, "...it is only the timing that is unknown."

 

[nazzdack]

Quote from piezoe:
.......it is only the timing that is unknown."

Not true. When the front-month, fed funds futures contracts get near 99.50, a tightening should happen. Otherwise it means that the FED is drastically "behind the curve". Anybody caught by surprise is naive.

 

[dont]

Ask yourself what if the S&P stays where it is for another decade and bond yields wander aimlessly for the next decade.

Then longs on equities who are all excited by the run up lose their shirts while the shorts who believe it will drop get handed their backsides from the negative carry.

Meanwhile bond holders are not very excited either!

Seems that the most pain the market can inflict is to do nothing for a very long time.

Try and sell options at 20% vol, see how that feels or buy at 20% and get eaten alive by theta driven by nothing markets.

Welcome to the "New normal"

 

[piezoe]

Quote from nazzdack:

Not true. When the front-month, fed funds futures contracts get near 99.50, a tightening should happen. Otherwise it means that the FED is drastically "behind the curve". Anybody caught by surprise is naive.

Good. So tell us when the front month contracts will get "near 99.50".

 

[pitz]

Quote from dont:
Ask yourself what if the S&P stays where it is for another decade and bond yields wander aimlessly for the next decade.

Then longs on equities who are all excited by the run up lose their shirts while the shorts who believe it will drop get handed their backsides from the negative carry.

Sadly, this is what I think the outcome for the US market will be, as it normalizes itself with China, a country that probably has a larger GDP than the United States at this point, in terms of useful production goes.

Long-term bond holders have enjoyed a 30-year run. What if the next decade is just all about yield curve steepening? The 30-year goes from 4% yield up to 20%, at a rate slow enough so there's not a massive arbitrage profit to be made, but at a rate fast enough so nobody investing long, borrowing short makes any money.

Everyone seems to think that the curve can't possibly get any steeper, but personally, I'm convinced that we're just getting started on the extent of steepening that will be seen and 300bp between short and long yields is *nothing* compared to what's in the pipe.

In such a scenario, being long commodity stocks, and short long-term bonds or even short bills makes the most sense.

Meanwhile bond holders are not very excited either!

T-Bond holders have a world of hurt ahead of them. There's a lot of unwinding to happen after such a glorious 30-year run. And unwinding the long term debt hurts the pension funds and the foreigners, the morons who facilitated the housing and the government bubble, the hardest -- exactly the people who are the most deserving of punishment, and the people who did little of anything to actually earn all the excess equity they've earned on those instruments.