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Is Bill Gross Anti-American?

March 5, 2011

Bill Gross says lots of things that are wrong. Wrong enough to put him close to being anti-american. I am still quaintly idealistic enough to believe things like “with great power comes great responsibility” and “people have a responsibility to help their government”

Bill Gross is one of the greatest bond traders of all time. He runs the largest bond fund in the world, and the largest company devoted to trading fixed income in the world.

Here are 3 things that Bill Gross also knows – if I know them, Bill Gross frackin’ knows them. And that he isn’t talking about them is dangerously close to being anti-americian.

1. Pimco caused most of the bond selloff late last year. When Pimco sold somewhere between $120-$400bn of U.S. Treasury bonds over 2 months, it caused a huge decline in the price of Treasury bonds. The selling done by Pimco was larger than the buying by the U.S. Fed so far, and done in a shorter amount of time. The amount of selling is one of the great position dumps in human history – there may have never been a larger sale of treasures by any entity in such a short amount of time.

2. The bid to cover across the entire yield curve has been high, strong, and healthy. Even if the primary dealers cut out .6 of this when the fed goes away June 30th, the bid to cover is still healthy. So in other words, there will be plenty of people willing to buy Treasuries.

3. The Feds purchases are large enough to buy 100% of the issuance by the treasury, but they are only able to purchse 70% of it. In other words, foreign countries are extremely aggressive in their bids. When the fed goes away, these foreigners are signalling they are very willing to buy much more treasuries.

With great power comes great responsibility.

Here are three other questions for Bill Gross:

1. When Pimco was selling its bonds, why was it talking about the threat of deflation in media outlets? Does this violate SEC trading regulations? Is this a material misrepresentations of what you are doing in your fund?
2. At what yield is Pimco willing to buy Treasuries? As Gartman famously said, at some price every instrument is a sell, at some other price every instrument is a buy. I know getting an honest non-bs answer is impossible out of Gross. But what is a good, fair value for treasuries right now? The greatest bond trader of our time has an opinion about this. The largest bond fund manager should not be able to make material representations about his opinion on Treasuries on national media outlets over and over and over.
3. Are there any other institutions with over more than $500bn in Treasuries who will be selling their entire position in the next year? China? Japan?

I know we sovereign types are insufferable bores. But hell, don’t you ever get tired of listening to the bond vigilantes be wrong for decades and decades across multiple countries? Bond vigilantes have been wrong for longer than I’ve had pubic hair. The White Sox won the world series and i didn’t even care anymore – I’d grown out of watching sports! I had kids and the oldest is 9 years old. I went from kid crew cut, to long indie rock hair, to balding enforced crew cut. We had 2 gigantic asset bubbles.

And bond vigilantes have been wrong the entire time – always warning the sky is about to fall. I’d call that hugely boring. fool me once, shame on you. Fool me 30 times, shame on me.

MMT explains why bond vigilantism is boring.

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