History and the occasional Pundit will judge you; PIMCO short US Gov. Debt
Exclusive: Bill Gross Is Now Short US Debt, Hikes Cash To $73 Billion, An All Time Record
In March, Pimco’s flagship Total Return Fund (TRF) has now taken an active short position in US government debt: -3% on a Market Value basis (or $7.1 billion), and a whopping -18% on a Duration Weighted Exposure basis. And confirming just what PIMCO thinks of US-related paper is the fact that the world’s largest “bond” fund now has cash, at a stunning $73 billion, or 31% of all assets, as its largest asset class on both a relative and absolute basis. We repeat: cash is more than PIMCO’s holdings of Treasurys and Mortgage securities ($66 billion) combined. To paraphrase: in March PIMCO was dumping everything related to US rates (see chart below). This is the first net short position that PIMCO has had in Government-related debt since the Great Financial Crisis of 2008, and going positive in February of 2009 only after it became clear that the Fed would commence monetizing US debt one month later. This is the closest that Gross has come to making a political statement and is now without doubt putting his money where his mouth is. The only event that could possibly derail Gross’ thinking is a huge market crash forcing a rush to Treasury safety. Alas, as has been made all too clear recently, US debt is no longer the safe haven it once was.
That Bill Gross is willing to risk a surge in redemptions (after all who would be wiling to pay PIMCO to manage a third of their assets in the form of supposedly devaluating cash) in order to make a statement about the credibility of the US government, and specifically the viability of its IOUs, is easily the only thing that the US government has to consider when evaluating the prospects for funding trillions and trillions of US deficits at “acceptable” rates in the absence of further quantitative easing by the Chairman.
If Gross is indeed right, something very wicked this way comes.
I covered last week the topic of dumping US debt here;
Pimco’s El-Erian on the decision to dump U.S. treasuries
- questionable who buys US debt after QE2 ends, at current prices,
- hold things that have value, label of US debt is just a label and at current price there are better things out there,
- Dollar should strengthen during crisis (flight to safety), but reality is different,
- World is recognising, Dollar has only a relative standing,
- World doesn’t like Dollar as much as they liked in the past.