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Bill Gross starts to feel the heat on his short Treasuries

May 7, 2011

Bill Gross thought that Treasuries would get crushed during QE II.  Nope. He was not the only one who thought Treasuries would get crushed.  Now Bill Gross says he might change his mind about Treasuries if the U.S. goes into a recession.  I’ve said this before, but Bill Gross is borderline anti-America.

Mr. Gross will be forced to cover his short Treasuries position at some point, and go long Treasuries. This will happen after the “Cash for Clunkers” rally at the end of QE II, adding further fuel to the rally in Treasuries.

In December, I expected a decent rally in Treasuries, and recommended getting long at the very beginning of QE II.  This has shown to be an ok trade.  The timing could have been better.  I was fighting the crowd back then, and that’s usually dumb. I should have waited for the hate to calm down a bit before going long. Still, there was only a few days of worry during the entire time since December.

Bill Gross is likely to buy a few hundred billion worth of treasuries in August and September, under the pretense of a immanent U.S. recession. Since we appear to be rallying through the end of QE II, and I fully expect the Cash for Clunkers effect to kick in after QE II ends.  As the effects from Cash for Clunkers begins to fade, Bill Gross and Pimco will step in a start to buy bonds.

This rally could be much larger than I expected at the beginning of QE II.  Treasuries could easily test the highs from last year.  This means the yields will test the lows.  As you can see, this is quite a distance from where we are now.

I will update the Strategic Ideas page to reflect this change in targets.

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Categories: Main
  1. Tom Hickey
    May 7, 2011 at 11:47 am

    “Go with Gundlach, not Gross” is going to be the new bond market mantra. Jeff was going long when Bill was going short.

  2. apj
    May 8, 2011 at 4:55 am

    I like your CfC ‘effect’ analogy, but wonder if it’s just a support player in this dynamic. In all cases of QE, once the markets realised that the QE didn’t really ‘take’ and the data began to reflect exactly that (like now), Treasuries quite rightly rallied again. Gone was the euphoria of the cavalry coming to the rescue (and hopefully succeeding) and the screeching from the inflationists. There actually shouldn’t be a lot of sellers now….the US domestic sector is too short of this asset class.

    • TC
      May 8, 2011 at 10:54 am

      I’ve probably overstated the power of the CfC, but I think that anyone would be stupid to not plan for a decently sized rally post end of QE II.

      I agree on the rest that analysis. You’ve got to figure that any speculation in commodities are will be funded not with cash but T-Bills. If oil goes to $70 a barrel, we could see negative CPI prints as as soon as July.

  1. June 2, 2011 at 4:03 pm
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