I guess Gross isn't so smart

[TPS]

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(Reuters) - Bill Gross, the manager of the world's largest bond fund, feels like "crying in his beer" for having bet so heavily against U.S. government-related debt earlier this year, the Financial Times reported on Monday.

 

Showing a more bearish view on the U.S. economy, Gross said PIMCO had initially dumped all of its U.S. debt holdings in March as he expected economic growth to be higher, resulting in inflation down the road.

 

That decision greatly undermined the performance of PIMCO's Total Return Fund (PTTRX.O). As Treasuries prices rallied, the fund lost 0.97 percent in the past four weeks, while the benchmark Barclay's U.S. Aggregated Bond Index rose 0.23 percent in the same period, according to Lipper data.

[Magox]

Sometimes even the best make mistakes. Having said that, I wouldn't be a buyer of a long-dated treasury at these levels. Sure the economy is gonna sputter, and demand for it will remain supported, but there are too many unknowns that could make these bonds jump.

 

One thing though, through out this crisis, even though most economic observers don't like the overall fundamentals of the US economy on a near to mid term basis, the fact that Europe is even off in worse shape than the U.S and that there is no real viable alternative to the US dollar as the reserve currency has really highlighted the importance of our reserve currency status. We are very fortunate to have that role, if not we would of seen higher rates than what we are seeing today.

 

Again, something that I had mentioned before, not all bond increases and decreases are made the same. You can't interpret with certainty one nations drop in rates as being equal to another's same goes for its increases. One nation may see bond rates increasing because of inflation, the other could be because of their debt situation. One nation may see a rate decrease because of low inflation, the other could see it because of its safe haven status.

[TPS]

Sometimes even the best make mistakes. Having said that, I wouldn't be a buyer of a long-dated treasury at these levels. Sure the economy is gonna sputter, and demand for it will remain supported, but there are too many unknowns that could make these bonds jump.

 

One thing though, through out this crisis, even though most economic observers don't like the overall fundamentals of the US economy on a near to mid term basis, the fact that Europe is even off in worse shape than the U.S and that there is no real viable alternative to the US dollar as the reserve currency has really highlighted the importance of our reserve currency status. We are very fortunate to have that role, if not we would of seen higher rates than what we are seeing today.

 

Again, something that I had mentioned before, not all bond increases and decreases are made the same. You can't interpret with certainty one nations drop in rates as being equal to another's same goes for its increases. One nation may see bond rates increasing because of inflation, the other could be because of their debt situation. One nation may see a rate decrease because of low inflation, the other could see it because of its safe haven status.

Here's an interesting little exchange we had about this last year...

 

My link

[Magox]

Here's an interesting little exchange we had about this last year...

 

My link

yes, and the we'll never agree, you don't put much emphasis on commodity inflation as a real indicator of true inflation and I don't place much importance on the fed's gauges of inflation. So we'll never agree if we are living in an inflationary environment. My point all along, which so far has been the case is that we would be living in a sub par growth economy with elevated inflation (commodity prices). Which is exactly what we are seeing today.

 

Wait until the economy rebounds, and then we'll really see prices increase.

Edited August 30, 2011 by Magox

[TPS]

yes, and the we'll never agree, you don't put much emphasis on commodity inflation as a real indicator of true inflation and I don't place much importance on the fed's gauges of inflation. So we'll never agree if we are living in an inflationary environment. My point all along, which so far has been the case is that we would be living in a sub par growth economy with elevated inflation (commodity prices). Which is exactly what we are seeing today.

 

Wait until the economy rebounds, and then we'll really see prices increase.

That's my line...

 

It's not that I don't put much emphasis on commodity inflation, rather I've been arguing that investment flows into commodities have been the main influence on increased commodity prices, not the global economy. Most commodity prices (outside of oil which can directly influence CPI) are included in the PPI, which will influence the CPI, based on the ability of producers to pass those higher costs along. As I've said all along, we will not experience any serious bout of inflation until the US (and other advanced economies) recover and unemployment approaches 6%.

Edited August 30, 2011 by TPS

[jjamie12]

That's my line...

 

It's not that I don't put much emphasis on commodity inflation, rather I've been arguing that investment flows into commodities have been the main influence on increased commodity prices, not the global economy. Most commodity prices (outside of oil which can directly influence CPI) are included in the PPI, which will influence the CPI, based on the ability of producers to pass those higher costs along. As I've said all along, we will not experience any serious bout of inflation until the US (and other advanced economies) recover and unemployment approaches 6%.

And, if I recall correctly, the reason you offered that you wouldn't have seen serious inflation from QE2 (I think that's where all of this came from) was that the newly 'printed' money was basically going to be sitting in excess reserves at the Fed because banks wouldn't put the money into circulation (lend) because there wouldn't be any lending to do unless (until) the economy recovers to a point where there is credit demanded.

 

How are they going to get the timing right on making sure inflation doesn't become INFLATION!?

 

I see that as the real danger.

Edited August 30, 2011 by jjamie12

[Magox]

That's my line...

 

It's not that I don't put much emphasis on commodity inflation, rather I've been arguing that investment flows into commodities have been the main influence on increased commodity prices, not the global economy. Most commodity prices (outside of oil which can directly influence CPI) are included in the PPI, which will influence the CPI, based on the ability of producers to pass those higher costs along. As I've said all along, we will not experience any serious bout of inflation until the US (and other advanced economies) recover and unemployment approaches 6%.

But it is, the evidence is there, just look at the demand numbers for every single commodity and they are moving higher on a consistent basis not withstanding the 08-09 years. The emerging market economies that are largely to blame for higher commodity prices along with loose monetary policy. ETF's have played a miniscule role in contributing to sustained price increases, I can say that with certainty. It's in the numbers TPS, all you have to do is look at demand trends for copper, oil, gold, corn (you name the commodity) and you will see that prices have followed those demand trends.

[TPS]

And, if I recall correctly, the reason you offered that you wouldn't have seen serious inflation from QE2 (I think that's where all of this came from) was that the newly 'printed' money was basically going to be sitting in excess reserves at the Fed because banks wouldn't put the money into circulation (lend) because there wouldn't be any lending to do unless (until) the economy recovers to a point where there is credit demanded.

 

How are they going to get the timing right on making sure inflation doesn't become INFLATION!?

 

I see that as the real danger.

That argument goes back to QE1, where the FED bought bad assets from the banks, and those reserves did just sit in banks. For QE2, the FED was buying long term treasuries in the open markets, and I was basically in agreement with Mag on the impact--dollar depreciation and commodity speculation. I posted this piece on PPP previously, but here it is again: My link

 

INFLATION! (as measured by the CPI) doesn't become a real problem until money gets into the hands of more people who spend it on goods and services (demand side inflation). If the money that is being "created" is put into the hands of "investors," then we will only experience asset (including commodities now) inflation, unless they are so leery that they put their funds in money markets and treasuries...the liquidity trap...

 

As for the timing...the FED will start to raise interest rates when (or IF) demand side inflation reappears.

[Magox]

That argument goes back to QE1, where the FED bought bad assets from the banks, and those reserves did just sit in banks. For QE2, the FED was buying long term treasuries in the open markets, and I was basically in agreement with Mag on the impact--dollar depreciation and commodity speculation. I posted this piece on PPP previously, but here it is again: My link

 

INFLATION! (as measured by the CPI) doesn't become a real problem until money gets into the hands of more people who spend it on goods and services (demand side inflation). If the money that is being "created" is put into the hands of "investors," then we will only experience asset (including commodities now) inflation, unless they are so leery that they put their funds in money markets and treasuries...the liquidity trap...

 

As for the timing...the FED will start to raise interest rates when (or IF) demand side inflation reappears.

But it already is, I believe you are looking at this through a domestic based economy lens. We are in a global economy, QE is having a profound effect on inflation on the demand side in China as well. That money is being filtered into other economies, and that is having an impact on overall commodity price inflation. Rising prices are mainly attributed to 2 different areas, one Global increased real demand for commodities and two, devaluation of dollar leading to higher prices. It's a twofold problem.

[Taro T]

That argument goes back to QE1, where the FED bought bad assets from the banks, and those reserves did just sit in banks. For QE2, the FED was buying long term treasuries in the open markets, and I was basically in agreement with Mag on the impact--dollar depreciation and commodity speculation. I posted this piece on PPP previously, but here it is again: My link

 

INFLATION! (as measured by the CPI) doesn't become a real problem until money gets into the hands of more people who spend it on goods and services (demand side inflation). If the money that is being "created" is put into the hands of "investors," then we will only experience asset (including commodities now) inflation, unless they are so leery that they put their funds in money markets and treasuries...the liquidity trap...

 

As for the timing...the FED will start to raise interest rates when (or IF) demand side inflation reappears.

They'll try to time it; I'd expect the horse will be well out of the barn by the time Bernanke sees inflation on the horizon.