Use access key #2 to skip to page content.

PIMCO Goes Short ... So What?

Recs

21

April 11, 2011 – Comments (4)

I like what TPC has to say below.

-----------------------

PIMCO GOES SHORT…
11 April 2011 by Cullen Roche

http://pragcap.com/pimco-goes-short

The financial media is making a big fuss over the report that PIMCO is now short US Treasuries. This isn’t all that surprising given the firm’s incessant fear mongering about government default. Of course, that hasn’t stopped them from buying instruments backed by the full faith and credit of the USA (as they’ve been riding the coattails of the real bond guru Jeff Gundlach into MBS), but who needs facts when you can make headlines by giving the appearance that you are sympathetic to the fears of the common man?

But more importantly, PIMCO’s big move is eerily reminiscent of QE1 when Bill Gross predicted surging yields.  Of course, he top ticked the market to the day and yields immediately tanked. In early 2010 Gross said:

    Won’t that (the end of QE1) put upward pressure on interest rates?
    “I think it will. I mean, the mortgage market would be your first place to look, in terms of something that’s overvalued that would become normalized. Nobody knows what the Fed’s buying is worth — we think about half a percentage point on rates, but we don’t know.”

You sure didn’t know!  Rates topped on the exact day QE1 ended.  And if their timing is as good this time around, the battle ship of bond market firms might be moving out of the way of the torpedo just in time to confront the one coming in the other direction.  In other words, one has to wonder, if Gross was so spectacularly wrong about QE1, why should anyone expect him to be right about QE2?



4 Comments – Post Your Own

#1) On April 12, 2011 at 9:40 AM, Seansonfire (39.94) wrote:

Great Post, +1 Rec.

The funny part is the downward slope in 10 year yeilds occured at the point exactly between QE1 and the first hint at QE2 which was August 27, 2010.

I also think QE1 was more focused on the "bad Debt" orginally in the system like MBS, and only later started purchasing long term government debt. 

QE2 is/was pretty much all long term government debt purchases in order to drive down the slope of the yield curve. 

In the end I don't know the reason that yeilds fell so much between QE1 and QE2, but my guess is the old saying "Buy the Rumor, Sell the News"

http://www.calculatedriskblog.com/2010/10/qe1-timeline.html

Report this comment
#2) On April 12, 2011 at 10:30 AM, binve (< 20) wrote:

Seansonfire,

Thanks

>>I also think QE1 was more focused on the "bad Debt" orginally in the system like MBS, and only later started purchasing long term government debt. 

Completely agreed. QE-I and QE-II happened in completely different environments. The crisis of 2008 was primarily a deleveraging crisis. QE-I added liquidity to the banking system when it needed it after the Lehman collapse. I have discussed that previously here: Moving Some Macroeconomic Deck Chairs: The Dollar, Dollar Swaps, Bonds and LIBOR.

>>QE2 is/was pretty much all long term government debt purchases in order to drive down the slope of the yield curve. 

Again, completely agreed. That was it's intention and it never really accomplished that goal. From the point of view of effect any real economic change, it was a spectacular failure: http://caps.fool.com/Blogs/follow-up-qe-is-not/533092...

Report this comment
#3) On April 12, 2011 at 11:28 AM, vriguy (77.51) wrote:

Gross goes in and out of US debt instruments all the time - and he's only 3% or so short - not exactly a huge bet.  That said, he's got a good track record overall.  I'm leaving a chunk of my 401k money in his Total Return fund.

Report this comment
#4) On April 12, 2011 at 3:15 PM, binve (< 20) wrote:

vriguy ,

>>Gross goes in and out of US debt instruments all the time - and he's only 3% or so short - not exactly a huge bet

Agreed, but the finanical reporting of this is bordering on ridiculous

However, Gross's rhetoric on 'solvency' is hugely misleading..

Report this comment

Featured Broker Partners


Advertisement