© Reuters / Jason ReedBill Gross
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.
Pimco's $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to 12 percent of assets in January, according to the Newport Beach, California-based company's website. The fund's net cash-and-equivalent position surged from 5 percent to 23 percent in February, the highest since May 2008.
Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco's website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.
Treasury yields are about 150 basis points too low when viewed on a historical context and when compared with expected nominal gross domestic product growth of 5 percent, he wrote in the commentary. The Fed is scheduled to complete purchases of $600 billion of Treasuries in June.
Gross in his February
commentary urged investors to reduce holdings of Treasuries and U.K. gilts and buy higher-returning securities such as debt from emerging-market nations. "Old- fashioned gilts and Treasury bonds may need to be 'exorcised' from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint," Gross wrote.
Emerging-Market DebtGross last month increased holdings of emerging-market debt to 10 percent, the highest since October, from 9 percent in January. He cut holdings of mortgage securities to 34 percent from 42 percent in January.
The Zero Hedge website first reported the change in assets today. Pimco doesn't comment on changes in holdings.
Treasuries returned 5.9 percent in 2010, according to Bank of America Merrill Lynch Indexes. The securities lost 0.6 percent so far this year.
Ten-year Treasury yields have risen for each of the past six months, according to data compiled by Bloomberg, the longest run since June 2006, as the economy showed signs of improvement and prices of commodities climbed. The 10-year yield fell six basis points to 3.48 percent today.
Gross kept the holdings of non-U.S. developed debt at 5 percent in February.
Inflation OutlookGross' fund has returned 7.23 percent in the past year, beating 85 percent of its peers, according to data compiled by Bloomberg. It gained 1.39 percent over the past month.
As the Fed maintains its target rate at a record low range of zero to 0.25 percent and has made an increase in inflation a cornerstone of its monetary policy, Gross noted that inflation may be a bigger factor than many suggest.
Gains in so-called headline inflation matter more for the U.S. economy than Fed Chairman Ben S. Bernanke suggests and rising oil prices may cut U.S. gross domestic product by a quarter to half a percentage point, Gross said March 4 in a radio interview on "Bloomberg Surveillance" with Tom Keene.
"Bernanke tends to think this doesn't matter -- at least in terms of headline versus the core -- we do," Gross said.
Pimco's U.S. government-related debt category can include conventional and inflation-linked Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the company's website. The fund can have a so-called negative position by using derivatives, futures or by shorting.
Derivatives are financial obligations whose value is derived from an underlying asset. Futures are agreements to buy or sell assets at a later specific price and date. Shorting is borrowing and selling an asset in anticipation of making a profit by buying it back after its price has fallen.
Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.24 trillion of assets as of December.
Commentary from last night's Midas Report www.lemetropolecafe.com
Did he just scream FIRE!....?
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To all; the link above is a story of how Bill Gross of PIMCO has cut it's entire holding of U.S. Treasury debt to ZERO. Mr. Gross makes the argument that the Treasury yield curve is overvalued by 150 basis points which is a step in the right direction and certainly will prod some investors to withdraw funds which is a good thing. His premises that the government is understating inflation by stripping out food and energy, future massive Treasury borrowing needs just to keep the doors open and of course the fact that the Fed (through Quantitative Easing) is now the biggest buyer of Treasuries are all correct but he just can't get himself to commit suicide. Can you imagine the "accidental" car crash, airplane falling from the sky or the the suicidal gunshot to the back of the head were he to really tell the truth? ie.... the U.S. Treasury and thus the entire system from A to Z is a bankrupt walking corpse that makes Madoff, John Law and even Mr. Ponzi himself look like upstanding fiscally responsible individuals!
In reality I know he knows this to be fact, I am also sure that he has been purchasing Gold and Silver related assets personally for several years. Maybe it took him until 2008 or when QE was first officially announced in 2009 to start but he knows it now for sure! Of course he can't say this because he doesn't want his car to crash but I believe he would like to. The bottom line is that Bill Gross just stood up in the theatre and screamed FIRE! at the top of his lungs which IS very dangerous because of who he is. He manages more money than any other single money manager in the world, Bloomberg, CNBC and the rest drool and fawn to have him on as a guest and what do they do now? Does Bill Gross get pooh poohed or "blackballed" like the many other "conspiracy theorist tin foil hat nuts" that spoke the truth before him? Yes, I can hear CNBC already (I am still in Brazil with no CNBC, only Bloomberg) "Bill Gross sold his Treasury securities because he thinks rates are too low given the bright prospects for continued strong and sustained recovery and growth in the U.S. He will be a buyer if and when rates move up a point and a half". (I am half expecting a call for employment from the White House, CNBC, Bloomberg or whoever for my "spin" prowess but won't hold my breath!).
All joking aside, the statements from Bill Gross is no joke at all. He very well may go down in history as the one who started a global stampede out of U.S. Treasuries. This all could have happened so much sooner if Warren (I sold my Silver too soon) Buffet had stuck to his guns and not given his metal back when threatened with General Re suits back in 1998 but that is just 12 years water over the dam. Investors are a funny (and scary) lot, they can remain calm and tranquil for a long time even when faced with undeniable facts but once they start moving they MOVE, and all at once I might add! Which brings me back to Mr. Gross screaming FIRE! Maybe he is the catalyst and maybe he is not but only a fool would gamble that the "crowd" doesn't move in the face of undeniable facts AND someone of his stature speaking of them VERY publicly!
I have written many times and linked many pieces (articles) to support my views that the end game (Treasury and systemic bankruptcy) was arriving. How much more proof does the herd need? Between The Fed becoming THE biggest buyer of debt from THE biggest borrower in the world and then THE biggest money manger screaming FIRE! louder than any little boy in the street pointing at the naked King ever could, what more could the herd need? It can't and certainly will not be a failed auction (which I did believe a year or two ago) because The Fed will simply not allow it. Will it be because of just one man? Maybe the herd will move "when the herd moves" as in picketing and rioting begin? Which IS already beginning to happen in the U.S. Maybe a Constitutional crisis as in our President is not a U.S. citizen or some other "unimportant detail". Who knows and who cares? Just knowing that it is coming is enough as long as you do and have already done to the best of your ability what you need to, to protect yourselves and families! Regards, Bill H.
P.S. while writing this in the early morning access hours I am watching the Dollar move up while Gold and Silver get smacked (can't get Treasury yields for some reason). In the past, were some obvious and fundamental truth be laid bare as Bill Gross has started to do, the metals would be strafed by a barrage of paper contracts just like this morning. It will be interesting to see whether or not Blythe Masters brigade can keep it up all day or even into tomorrow, just know that "paper bullets" can only kill if you have margin and allow yourself to be killed! The messenger has been "shot" many times before and has risen to over$1,400, an infinite amount of "paper bullets" guarantees an infinite Dollar price for Gold! Understand this and you understand it all!