PIMCO’s Bill Gross Asks The $64,000 Question: ‘Who Will Buy Treasuries When The Fed Doesn’t?’ His Answer: ‘I Don’t Know’; Gross Is Getting Out Of Risk

After serving as the inspiration for the Chairsatan’s latest appellation with his February missive, Bill Gross now goes for the jugular with the $64,000 question: with “nearly 70% of the annualized issuance since the beginning of QE II has been purchased by the Fed, with the balance absorbed by those old standbys – the Chinese, Japanese and other reserve surplus sovereigns.

Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t. Because like at the end of a typical chain letter, the legitimate corollary question is – Who will buy Treasuries when the Fed doesn’t?” Bingo, we have a winner.

This is precisely the issue that Zero Hedge has been exposing over the past 6 months, and is the reason why the Fed is now locked in a QEasing corner from which there is no exit. To his credit, Gross attempts to provide an answer: “Someone will buy them, and we at PIMCO may even be among them.

The question really is at what yield and what are the price repercussions if the adjustments are significant… What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%.”

And the stunner: “Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets. 15% gratuities may lie ahead, but more than likely there is a negative two-bit or even eight-bit tip lying on the investment table. Like I did 45 years ago, PIMCO’s not sticking around to see the waitress’s reaction.” Translation: Pimco just issued a “sell” rating on everything.

Full article here: ZeroHedge

PIMCO’s Bill Gross: UK a ‘must to avoid’ as its debt lies ‘on bed of nitroglycerine’

Highly recommended:

PIMCO’S Bill Gross: ‘Let’s Get Fisical’ (… or why the US will not make it.)

Related articles:

Britain Faces New Souvereign Debt Crisis As PIMCO Pulls Out

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Bill Gross deals blow to government with warning to his investors that Britain’s debt makes it a ‘must to avoid’

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The government’s hopes of claiming credit for reviving the British economy suffered a severe blow today when the world’s biggest buyers of bonds warned that the UK was a “must to avoid” for his investors as its debt was “resting on a bed of nitroglycerine”.

The intervention by Bill Gross, co-founder of California-based fund managers Pimco, came on the day official figures confirmed that Britain had emerged from the deepest recession since the 1930s – but only by the narrowest of margins.

The economy grew by 0.1% in the final three months of last year, much weaker than even the most cautious expectations in Westminster and the City. The unexpectedly sluggish performance prompted Alastair Darling to warn that Britain could yet fall back into recession, telling the Guardian “there will be hiccups along the way”.

Read morePIMCO’s Bill Gross: UK a ‘must to avoid’ as its debt lies ‘on bed of nitroglycerine’

PIMCO’S Bill Gross: ‘Let’s Get Fisical’ (… or why the US will not make it.)

On Thursday I had posted Bloomberg’s summary on the monthly investment outlook by PIMCO’s Bill Gross:

PIMCO’s Bill Gross warns on risks of US deficit: ‘Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people.’

But that summary missed a lot of important points.

Here is just one excerpt as a starter:

“Here’s the problem that the U.S. Fed’s “exit” poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but as shown in Chart 2, foreign investors as a group bought only 20% of the total – perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve. …”

If that doesn’t bother you, then I do not know what will. The Federal Reserve is creating money out of thin air like there is no tomorrow and the bad news is that that is exactly what the elite that controls the US government and the Federal Reserve has planned for America:

In the next two years (or just a little more than that) we will see hyperinflation in the US, people in America will become desperately poor and the Greatest Depression will turn the US into a Third World country.

(In 2009 Bill Gross was named the world’s 32nd most powerful man by Forbes.)

Now here is the full article by Bill Gross, ‘The King of Bonds’ (Must-Read!):


Let’s Get Fisical

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Quixotic journeys often make for great literature, but by definition are rarely productive. I am, after all, referring to windmills here – not their 21st century creation, but their 17th century chasing. Futility, not productivity, was the ultimate fate of Cervantes’ man from La Mancha. So it is with hesitation, although quixotic obsession, that I plunge headlong into a discussion of American politics, healthcare legislation, resultant budget deficits and – finally – their potential effect on financial markets. There will be windmills aplenty in the next few pages and not much good can come of these opinions or my tilting in their direction. Still, I mount my steed, lance in hand, and ride forward.

Question: What has become of the American nation? Conceived with the vision of liberty and justice for all, we have descended in the clutches of corporate and other special interests to a second world state defined by K Street instead of Independence Square. Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people. Washington consistently stoops to legislate 10,000-page perversions of healthcare, regulatory reform, defense, and budgetary mandates overflowing with earmarks that serve a monied minority as opposed to an all-too-silent majority. You don’t have to be Don Quixote to believe that legislators – and Presidents – often do not work for the benefit of their constituents: A recent NBC News/Wall Street Journal poll reported that over 65% of Americans trust their government to do the right thing “only some of the time” and a stunning 19% said “never.” What most politicians apparently are working for is to perpetuate their power – first via district gerrymandering, and then second by around-the-clock campaigning financed by special interest groups. If, by chance, they’re ever voted out of office, they have a home just down the street – at K Street – with six-figure incomes as a starting wage.

What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return. The fact is that American citizens have never been as divorced from their representatives – and if that description fits the Democratic Congress now in control – then it applies to Republicans as well – past and present. So you watch Fox, or is it MSNBC? O’Reilly or Olbermann? It doesn’t matter. You’re just being conned into rooting for a team that basically runs the same plays called by lookalike coaches on different sidelines. A “ballot box” pox on all their houses – Senators, Representatives and Presidents alike. There has been no change, there will be no change, until we the American people decide to publicly finance all national and local elections and ban the writing of even a $1 check for our favorite candidates. Undemocratic? Hardly. Get on the internet, use Facebook, YouTube, or Twitter to campaign for your choice. That’s the new democracy. When special interests, even singular citizens write a check, it represents a perversion of democracy not the exercise of the First Amendment. Any chance that any of this will happen? Not one ghost of a chance. Forward Don Quixote, the windmills are in sight.

Distressed as I am about the state of American democracy, a rational money manager cannot afford to get mad or “just get even” when it comes to investing clients’ money. Still, like pilots politely advertise at the end of most flights, “We know you have a choice of airlines and we thank you for flying ‘United’.” Global investment managers likewise have a choice of sovereign credits and risk assets where stable inflation and fiscal conservatism are available. If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.

Read morePIMCO’S Bill Gross: ‘Let’s Get Fisical’ (… or why the US will not make it.)

PIMCO’s Bill Gross warns on risks of US deficit: ‘Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people.’

Wake up America!

Peter Schiff on Fast Money: ‘America is broke’; ‘The Fed created a currency crisis’; ‘Dollar to collapse 50-70% or more’

US: Public Pensions Face $2 Trillion Deficit

U.S. Avoids Technical Default By Three Days



Gross warns on risks of US deficit

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Bill Gross

Jan. 7 (Financial Times) – Bill Gross, the influential bond fund manager who is one of the world’s biggest investors in sovereign debt, said it was unlikely that the US economy was strong enough for the government to “gracefully exit” stimulus spending programmes or that private investors would be capable of absorbing the balance in deficit funding.

In a monthly investment outlook Mr Gross, managing director and a founder of Pimco, which has $940bn under management, commented on US healthcare legislation, the resulting budget deficits and the potential impact on financial markets.

The four-page commentary, entitled “Let’s Get Fisical”, included a scathing attack on the workings of the US political system. He urged the American people to use social networking sites like Twitter to have their voices heard over individual political donors.

“Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people,” said Mr Gross. “When special interests, even singular citizens, write a cheque, it represents a perversion of democracy, not the exercise of the First Amendment.”

In highlighting that just $500m spent in healthcare lobbying by labour, insurance, “big pharma” and related corporate interests would generate a $50bn-$100bn annual return, he said, “What amazes me most of all is that politicians can be bought so cheaply.”

Mr Gross said that while he was “distressed” at the state of US democracy, a rational money manager could not afford to “get mad” when it comes to investing clients’ money. Global investment managers have a choice of sovereign credits where “stable inflation and fiscal conservation are available”, he said.

Read morePIMCO’s Bill Gross warns on risks of US deficit: ‘Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people.’

US Will Eventually Lose Its AAA Credit Rating: Bill Gross

Geithner Pledges to Cut Deficit Amid Rating Concern

May 21 (Bloomberg) — Treasury Secretary Timothy Geithner said the Obama administration is committed to reducing the federal budget deficit after concerns rose that the U.S. debt rating may eventually be threatened with a downgrade.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television. He added that the target is reducing the gap to 3 percent of gross domestic product or smaller, from a projected 12.9 percent this year.

The dollar, Treasuries and American stocks slumped today on concern about the U.S. government’s debt rating. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade.

Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.”

Benchmark 10-year Treasury yields jumped 17 basis points to 3.37 percent at 4:53 p.m. in New York. The Standard & Poor’s 500 Stock Index fell 1.7 percent to 888.33, and the dollar tumbled 0.8 percent to $1.3890 per euro.

Gross’s Warning

Gross said in an interview today on Bloomberg Television that while a U.S. sovereign rating cut is “certainly nothing that’s going to happen overnight,” financial markets are “beginning to anticipate the possibility.”

Britain saw its own AAA rating endangered earlier today when Standard & Poor’s lowered its outlook on the nation’s grade to “negative” from “stable,” citing a debt level approaching 100 percent of U.K. GDP.

It’s “critically important” to bring down the American deficit, Geithner said.

Read moreUS Will Eventually Lose Its AAA Credit Rating: Bill Gross

A $43 Trillion Dollar Market That Most People Have Never Heard Of

According to Bill Gross, a fixed income market guru, the size of the credit default swap market is “$43 trillion, more that half the size of the entire asset base of the global banking system.” If that is not scary enough he goes on to tell is that “total derivatives amount to over $500 trillion, many of them finding their way”………………….well, everywhere.

You are going to be hearing a lot more about these markets in coming weeks and months, which begs the question, why don’t most people even know what they are? And more importantly, why should we care?

Read moreA $43 Trillion Dollar Market That Most People Have Never Heard Of