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Wednesday, Mar 9
2011, 11:41 AM
Pimco confirms that it's unloaded all U.S. government holdings, including Treasurys, in the...
Pimco confirms that it's
unloaded all U.S. government holdings
, including Treasurys, in the Total Return Fund, the world's biggest bond fund. The holdings
were at 12%
, now zero; maybe Bill Gross
isn't just talking his book
. (Zero Hedge:
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When QE2 ends I would think treasuries may rally like they did when QE1 ended.
But maybe he knows something different.
There is more inflation now, but how susustainable is it if commodities were to fall when QE2 ends?
9 Mar 2011, 11:44 AM
Regardless of inflation, the depreciation of the value of the dollar makes fixed income debt a losing proposition. And with the excessive debt we have incurred, just the amount to service the debt will consume the major portion of our tax revenues. Bernacke can't keep interest rates down forever.
9 Mar 2011, 05:17 PM
I'll bet he knows a lot of things that we don't.
If I owned em I'd be dumping along side him.
9 Mar 2011, 11:47 AM
It's easy to make the bear case for Treasuries: supply is high and rising (and will rise even faster if QE is unwound, even just by not rolling over paper). Rates are low by historical standards. Inflation is a major risk not really priced into Treasuries today. The United States has serious structural problems with its fiscal policy, and these problems will worsen as demographics continue deteriorating. If you are a foreign investor, you're aware that the dollar is in a long-term weakening trend... and has been since 1971, so you're not going to speculate on Treasuries or dollar deposits; you're going to limit your exposure to Treasuries to that part of your assets which have to be dollar-denominated. The dollar's reserve status is in jeopardy and could be lost in as little as 10 years. If you believe in the United States at all, you want to own stocks or high-yield bonds anyway, not Treasuries. And if you don't, you probably don't have much confidence in Treasuries, either (default or debasement, same thing either way). Even if commodity prices cool off, yields are so low that you have no margin of safety. And sooner or later, interest rates will rise. Japan has shown that it might take many years, but they will rise just the same.
Make the bull case.
9 Mar 2011, 11:52 AM
Nice assessment. I hope someone can attempt to intelligently counter your claims, but it sure as hell won't be me.
9 Mar 2011, 12:07 PM
"Serious structural problems" compared to what, or who? US treasuries are still the safe haven of choice. And yields have already risen significantly in the last 6 months, a trend I don't see continuing forever. The dollar is bouncing off the multi-year uptrend and equities are looking toppy. As far as Bill Gross, he has his own agenda, though normally, I would side with the big boys, but not against the Fed. That is the bull case.
9 Mar 2011, 03:05 PM
I suppose the bull case is the Fed ends QE2 with the start up of a bigger QE3. While it would be financially and economically reckless IMO, it would also provide further support for Treasuries where there is surely not enough demand to support the low interest rates we now enjoy. That isn't to say Treasuries will do much more than hold some ground for a while longer before short sellers grow increasingly more aggressive when up against the Fed.
9 Mar 2011, 12:02 PM
Agreed. QE2 has been a net detriment to Treasuries. With the Fed now holding such a large fraction of securities, even a major vigilante run might not cause a huge rise in yields if the Fed were willing to do another major round of QE. So that action would, as you say, probably cause yields to remain in a listless and broad trading range. Hardly a compelling bull case, though perhaps a reason not to be short. The only bull cases I can come up with involve either the Fed deciding to simply set the shape and level of the entire curve and be done with it, or a combination of another recession combined with new laws or regulations forcing liquidity away from commodities. While either is somewhat plausible, neither inspires fundamental confidence in the long-term real value of Treasuries because either one would be an acknowledgement that the US economy is broken, perhaps irreparable, and under the control of small, frightened men.
9 Mar 2011, 02:02 PM
As long as Jobs-Jobs-Jobs is the goal (at the expense of reducing Trillion dollar budget overruns) there is zero chance of financial survival at any level of government. Plain and simple!
9 Mar 2011, 12:47 PM
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