It’s really hard to believe deflation is, or will be, a threat. The government debt cannot be paid unless there is first a severe devaluation in the dollar, which means lots of inflation.
At least one of us is wrong (I hope it’s both of us, but I’m confident it’s not).
While I agree that is what the Fed and the Treasury are trying to do, inflate.
However they are moving against very strong fundamental currents. Wealth destruction has been enormous and all this new money isn't going anywhere besides the banks balance sheets to cover their earlier bad investments (now held mostly by the Fed) or into "safe" investments as the banks now see them.
If you believe inflation is going to roar up and bailout the holders of assets, that's a good reason to drop bonds...but even bonds are better than straight cash as a hedge against inflation. Cash pays nothing or very close to it.
However, if you expect massive deflation, cash is the ONLY place to be. It's real value accelerates in direct proportion to the level of deflation.
My deduction is thus: Gross believes cash would be better than US treasuries and he knows as much about the treasury markets that just about anybody. He wants to be liquid. Since all he can hold is bonds and cash...he doesn't have an option for commodities or equities...he hold cash.
Yes, he could be positioning for 8% on the 10yr bond...but I doubt it.
Some very astute people are starting to see massive default everywhere. Hell, the United States Government is going to default and Treasuries are CERTAIN to be worthless then.