Of course, Gross now has a huge interest in bonds dropping like a lead balloon. He could easily be trying to drive bonds down so he can swoop in when they reach the basement.
Still, I do not see how we get out of this mess without a catastrophe, part of which will be a huge drop in bond values as interest rates skyrocket. There is really no where to hide, either for Gross or for the rest of us. Cash may be better than bonds, but inflation will destroy the cash too (slower than it destroys the bonds, I suppose, but dead is dead). It looks like I will leave my wife to live out her life in poverty, regardless of how hard I have worked to be sure that did not happen.
If the value of money becomes nearly worthless you can still use it to pay off your house and debts. Maybe you have already done this, but if not, think abaout it. Owning a home outright will be a crucial part of surviving this mess. When the dam breaks be prepared to pay stuff off with cheap dollars, starting with your house.
olrtex wrote: Of course, Gross now has a huge interest in bonds dropping like a lead balloon. He could easily be trying to drive bonds down so he can swoop in when they reach the basement.
..... You MIGHT be right. But on the other hand maybe a cigar is just a cigar, as Groucho once put it, and Gross has simply lost faith in US treasuries as an investment vehicle. PIMCO may represent the world’s largest investment bond fund, but its holdings were far from the world’s largest position in US treasury bonds. That distinction, as I understand it, is held by the US Federal Reserve, which recently surpassed China. The Fed and China alone jointly hold about US$ 2 trillion in US treasuries. After that, there are the Europeans, the Arabs, and a legion of other investors both private and governmental. I’m not sure that PIMCO’s treasuries position was large enough to meaningfully manipulate the market, especially when a couple of hundred billion in US treasury bonds goes to auction every month. If I’m wrong on this perhaps some better informed Freeper here can educate me.
The important questions I’m asking in this situation are -
Why is the US Fed such a large holder of US treasuries?
Answer - No one else is willing to buy them in the necessary volume, which means that “supply” is exceeding demand, which in turn means that the global investment market does not have the appetite to buy US debt obligations at the rate which it is currently being created.
Where does the Fed get the money to make such purchases?
Answer - they simply create it out of accounting legerdemain and thin air.
None of the above gives me any degree of comfort. That being said, what is any sane person, including Gross, supposed to do if he believes in an impending collapse in the value of an important portfolio holding?
Answer - Sell.
Sometimes a cigar is just a cigar.