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Bill Gross Goes Short the U.S.A.

Written By Brian Hicks

Posted April 11, 2011


Here’s one that caught my eye last night…

Bill Gross has actually gone short on Uncle Sam—proving that his sudden lack of interest in government debt is no mere bluff.

For a guy known around the Street as the “Bond King” that would on par with Charlie Sheen suddenly deciding to give up hookers and blow

But as Gross points out, the current quantitative easing regime “is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme.”

What’s more, he rightfully claims: “It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead end where those prices can no longer go up.”

In fact according to Gross, “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%.”

If Gross is correct, that would push yields on 10-year notes to 5%, ending the bond bull market and perhaps collapsing the bond bubble entirely.

In the meantime Gross maintains, “ we are out-Greeking the Greeks’…

From Reuters entitled: PIMCO now betting against U.S. government debt

The world’s largest bond fund began betting against U.S. government debt last month on the expectation that shaky finances will jolt interest rates higher.

PIMCO, through its outspoken co-chief investment officer, Bill Gross, has been raising alarms about a lack of buyers for Treasuries once the Federal Reserve ends its own bond purchase program, also known as QE2, in June.

In February Gross revealed his ultra-bearish view on the United States by dumping all of his fund’s U.S. government-related debt holdings.

The portion of PIMCO’s $236 billion Total Return Fund held in long-term U.S. government debt, including U.S. Treasuries, declined to “minus 3” percent in March from zero in February and 12 percent in January.

In a short position, an investor sells a borrowed security on a bet it can buy the bond back later at a lower price.

Cash equivalents, including Treasury bills and other debt with maturities of less than a year, rose to 31 percent of the fund’s assets from 23 percent in February.

PIMCO’s vote on the state of U.S. finances comes just as Washington narrowly averted a government shutdown on Saturday after Democrats and Republicans agreed on cutting $38 billion in spending for the fiscal year.

The 11th hour compromise probably had little impact on the investment strategies of Gross, who said in an April newsletter that the U.S. government was “out-Greeking the Greeks,” a reference to the out-sized government debt in Greece that forced the country to ask for a bailout.

“We are smelling $1 trillion deficits as far as the nose can sniff,” if the government fails to address the biggest entitlement programs: Medicare, Medicaid and Social Security, Gross said in his outlook.”


I’ll say it again….the status quo cannot possibly be maintained.

 Related Articles:

Gross, Grantham Agree: QE 2 is Troublesome

Weekend: The Bond King Says Sell

The World According to Pimco’s Bill Gross

The World According to Pimco’s Bill Gross Part 2

The World According to Bill Gross Part 3


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