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Bill Gross goes big in cash

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March 09, 2011 – Comments (10)

http://www.cnbc.com/id/41988321

He probably does not expect QE3.

I find it funny how Tyler Durden says the end of QE means to run like hell from stocks and bonds....why doesn't he mention precious metals? Wouldn't they get crushed by the end of QE?  Biases can lead to stupidity.

I expect more QE, but he knows better than I do.  If you expect yields to rise though, being high in cash doesn't seem like the greatest thing to do either.

10 Comments – Post Your Own

#1) On March 09, 2011 at 2:13 PM, checklist34 (99.71) wrote:

i have a feeling Gross is buying treasuries also.

I do not trust that guy one bit, somehow he strikes me as sooo slimy.  Last year he was talking about the end of bonds, and then it was revealed he had massive treasury stockpiles awhile later. 

 

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#2) On March 09, 2011 at 2:14 PM, checklist34 (99.71) wrote:

i have that feeling because he was trash-talking treasuries the other day

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#3) On March 09, 2011 at 2:43 PM, checklist34 (99.71) wrote:

apologies to Gross if I'm wrong.  But i just think Pimco is one of the worst offenders at talking its book, that they'd say about anything to help their fund.  

I can't explain it, my dislike for Pimco, they just rub me wrong.

I suppose in this case, they would be taking a legal risk if they had not in fact dumped their treasury position.  ?

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#4) On March 09, 2011 at 3:46 PM, TheDumbMoney (44.25) wrote:

checklist, they have in fact dumped their treasury position, it has been reported in various places today.   Also, it would be a huge legal risk if he lied.  They talk their book, but they legally talk it, after they have marked their positions.

Valyooo, it's just about his Total Return bond fund, so this is just a call as between treasuries and cash.  As you know-dobut know, as yields rise, the value of the bonds drop.  So better to hold cash.  Emerging market debt yields are already high, so they are a good deal for Gross, and if yield subsequently drop (once inflation gets under control) they will be an even bigger gainer for Gross.

Here Gross believe, probably rightly, that we are going to see Treasury yields rise, which will destroy the principle value of the bonds people already hold.  The beauty of this position is that if the economy improves, yield will rise to normal levels as QE2 ends (it has depressed yield).  And if debt worries freak people out, yield will risk much more because of sovereign concerns (much less likely).  And if inflation gets out of control and Bernanke has to pull a Volcker and pop interest rates up really high to tame it, Gross will win too.  The only way this trade loses is if we see deflation going forward, and/or yields declining back to 10/2010 levels or below..., which Gross must believe is highly unlikely. 

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#5) On March 09, 2011 at 8:16 PM, ChrisGraley (29.76) wrote:

dumberthanafool nailed it.

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#6) On March 09, 2011 at 9:45 PM, TheDumbMoney (44.25) wrote:

"so this is just a call as between treasuries and cash"

That statement by me was actually wrong, as the latter part of my comment indicated, it's a call as between treasuries, cash, and other things that he can put in the Total Return bond fund (world's largest), meaning other forms of bonds, including emerging debt.  The fund does not hold equities, commodities, etc.

Chris, well thank you, I certainly hope so!

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#7) On March 09, 2011 at 10:17 PM, Valyooo (99.45) wrote:

Well I understand all of that,  but do you think yield rising would push divvy payers higher?  The investment money isn't going to sit in all cash during inflation waiting for higher yields.

Frankly, I would love for bond rates to spike really high so I can dump all of my money in to them and not have to do anything with my investment until I get my principle back.

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#8) On March 10, 2011 at 1:07 PM, TheDumbMoney (44.25) wrote:

As to dividend stocks, I have no idea.  I tend to think certain dividend stocks have actually been helped by the fact that bond yields are low.  If bond yields go up, I could see a lot of people dumping stocks like PM, MO, and T in particular to go into bonds, and I would say that might be even more tru for the Master Limited Partnership pipeline stocks.  If I were making a short-term bet (1 year), I probably would not be buying any of these stocks today, but who knows. 

Speaking of your last comment, in the early eighties (Volcker-era), my wife's grandmother stuck a huge amount of her savings in a laddered series of bonds, most yielding well over 11% annually.  The last of them (30-year-bonds) finally phased out recently, and she may still have some that haven't stopped paying.  So, yeah, she did well....

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#9) On March 10, 2011 at 1:08 PM, TheDumbMoney (44.25) wrote:

....and some were tax-free munny bonds, too....  Not that most people would make the munny bet today.)

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#10) On March 10, 2011 at 8:00 PM, Valyooo (99.45) wrote:

I would.  If I could find a muni paying 11%, triple tax free...when I start making decent money one day that could be a taxable equivalent of like 19%......that is ridiculously good. Munis very rarely default, and they have had problems before.

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