Bill Gross: Its Going To Be Deflation

[A.steve]

The more pertinent question would be can he cause it?

A better question would ask if deflation is caused... and I don't think either inflation or deflation are caused by the activities of individuals, but -rather - they're akin to a 'collective concious' that transcends intention and planning. Furthermore, because 'money' is so nebulous a concept (where we need to decide on a case-by-case basis what constitutes money for our purposes... including, or excluding, for example, gilts, corporate bonds and lines of credit secured against assets to be repaid by future income.) These two factors make it very difficult to assess what we're even talking about when we say 'deflation' - though most agree on falling prices and an increased burden of existing debt... possibly offset by lower interest rates.

Taking the 'collective concious' idea a step further, it is safe to assume that a similar explanation can be attributable to past inflation - i.e. that inflation arises because there is a perception (direct or indirect) of inflation arising. So, using this model, both inflation and deflation are self-fulfilling prophecies. Returning to the 'collective concious' idea, this is actually a phrase from academic psychology - and has been associated with religious beliefs and phenomena akin to mass delusions... with the rather straightforward presumptions that such behaviour emerges as a result of human communication rather than as a result of the ideas of an individual. With this perspective, I think we should look to the most widely believed abstract philosophical perspective if we are to anticipate the behaviour of the population as a whole - since this will pervade all communication. In my opinion, the abstract philosophical perspective of our age is that derived from Newtonian physics - a widely understood model that is hard to refute in its native context. My evidence to support this view is the widespread adoption of pseudo-science to justify decisions in other domains - and the fact that calculus is the 'advanced' technique employed in estimating risks and financial engineering. Newton had three laws which I translate into an abstract framework for reason:

1. Things that happen have causes. (Force is required to change motion.)

2. Small things far easier to control than big things. (Force required is proportional to mass)

3. Every perspective has an equally valid opposite. (Every force has an equal and opposite reaction)

I suspect that people are subconsciously adopting these principles and are applying them even where it is not necessarily the "right" model - or, maybe I should say, where there is no compelling justification for the model in that domain. Ironically, because I think that this is how people tend to behave today, even though there is no objective justification for predictions based upon this model, I expect the model will still appear to hold... ironically, generating empiric evidence to support it as a theory.

If I'm right, then this suggests that, from the perspective of individuals, deflationary pressures are no more unreasonable than inflationary pressures (rule 3)... similarly, it will be accepted that no-one can buck 'reality' - with a perception that anyone who doesn't 'go with the flow' will be a victim (rule 2) - and that, if deflation takes hold, it will continue for the foreseeable future (rule 1.) I don't think any individual can alter this - and I doubt that any group are sufficiently co-ordinated to establish a different belief. With this in mind, I expect everyone to be constrained to act from their own personal perspective - and that the end consequence will be entirely outside human control.

Edited September 29, 2009 by A.steve

[lowrentyieldmakessense(honest!)]

How's the price of uranium doing? All this noise about gold and fiat makes a man scared. Not scared enough to sell his gold though. I'll never sell, never.

chart

[Pindar]

chart

It's quite funny how these people try and "shake out the little people" when the price of gold starts to rise. It's been solid as a rock against the pound. People pay too much attention to the dollar price of gold even if they aren't themselves, denominated in dollars.

If we get deflation, I can still get more for my gold. If we get inflation, I get the same.

[libspero]

Laffer curve says no.

The Laffer curve coined by a certain Art Laffer?

Art Laffer?

[indirectapproach]

"if deflation takes hold, it will continue for the foreseeable future "

Interesting post.

So you're for deflation then .... ?

Whatever that is.

[Guest KingCharles1st]

Interestingly, one of the "e- front pages" was carrying a story today regarding the prices of the worlds most expensive cars- old Bugatti's ferrari's etc. Everyone seemed smug with their purchases.

Yet a certain financial idiot (sarcasm) name of Bernie Ecclestone dumped his collection of hideously expensive classic motors through the auctions a few months ago....

Edited September 29, 2009 by KingCharles1st

[wren]

ah - by inflation hedges i suppose you mean gold? i guess you can't mention that because you seem to get your azz kicked everytime you post about it.

anyway have a listen to harry s. dent who is also a deflationista & makes a very powerful case for deflation. strangely he thinks gold will be going up...

The history over at least the last 300 years shows that gold does well during deflationary periods.

How come?

Gold is a hard currency, harder than any other.

[indirectapproach]

It seems Laffer (ha ha, I laffed) was a member of Reagan's Economic Policy Advisory Board so it should come as no surprise he got his name stuck to someone else's graph.

Here's a bit more of the great man.

http://www.youtube.com/watch?v=z3WjgKUf-kA

[oracle]

http://www.bloomberg.com/apps/news?pid=206...id=a5qkMIPH67tQ

Pimco’s Gross Buys Treasuries Amid Deflation Concern (Update1)

Share | Email | Print | A A A

By Thomas "Tom" R. Keene and Susanne "Suzi" Walker

Sept. 29 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said he’s been buying longer maturity Treasuries in recent weeks as protection against deflation.

utter b0ll0cks

you should listen to the charts,some of the music is quite interesting these days!!

http://www.youtube.com/watch?v=PeBWNo3sPTM

I assure you,if you look at things on a global scale it will be deflationary,but for those in western based fiat systems it will be very very inflationary indeed.

especially in agriculture and fuel.

Edited September 29, 2009 by oracle

[indirectapproach]

However, it would seem that Schiff, the other guy has feet of clay too.

'In January 2009 financial blogger Mike Shedlock claimed that Peter Schiff's investment strategies have resulted in some of his Euro Pacific Capital account holders losing 60% to 70% of their value in 2008,[17] a claim Shedlock made based on a single client's results.

Schiff responded to this claim by stating, "to examine the effectiveness of my investment strategy immediately following a major correction by looking only at those accounts who adopted the strategy at the previous peak is unfair and distortive."[18]

He adds that losses were felt mostly by recent clients and not by his long-standing investors.

In an interview on Yahoo Tech Ticker on February 6, Schiff's position was summarized as a nonpartisan critique of American policymakers, comparing former President George W. Bush to Herbert Hoover and President Barack Obama to FDR, and neither in a favorable way.

In The Wall Street Journal, on February 11, Schiff responded to his critics:

"My central investing premise, a weakening dollar and safety in gold, commodities and foreign stocks, didn't materialize in 2008. But all the ingredients were (and remain) present for those movements to occur. Over the past year, market reactions that I didn't foresee—massive global deleveraging, a knee-jerk 'flight to quality' into U.S. Treasuries and a sharp counter trend rally in the U.S. dollar—have kept the scenario from playing out." '

http://en.wikipedia.org/wiki/Peter_Schiff

[interestrateripoff]

The Laffer Curve assumes that the Government will collect no tax at a 100% tax rate because there would be no incentive to earn income. However some economists question whether this assumption is correct. They argue, for example, that in the Soviet Union there was an effective 100% tax rate and yet, while the Soviets were not known for their efficiency, the government still managed to fund a very large and highly dispersed military while at the same time creating a highly advanced space program at the point of a gun.

I would agree the laffer curve clearly is flawed, at 100% tax rate you could induce incentives in the workforce, ie work hard you get a bigger TV etc... The system would eventually implode on itself due to corruption and the fact mates would get nice big TV's regardless of performance.

However the primary point about that an optimum tax rate exists is probably true but is likely to be very fluid.

[jonpo]

READ ALL ABOUT IT

world exclusive!

Worlds largest bond trader thinks bonds are good investment...

In other news

Brown thinks Labour are cool

Buffet says buy Goldman Sachs

Murdoch says people should pay for online Times!

[Sour Mash]

http://www.bloomberg.com/apps/news?pid=206...id=a5qkMIPH67tQ

Pimco’s Gross Buys Treasuries Amid Deflation Concern (Update1)

Share | Email | Print | A A A

By Thomas "Tom" R. Keene and Susanne "Suzi" Walker

Sept. 29 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said he’s been buying longer maturity Treasuries in recent weeks as protection against deflation.

“There has been significant flattening on the long end of the curve,†Gross said in an interview from Newport Beach, California, with Bloomberg Radio. “This reflects the re- emergence of deflationary fears. The U.S. is at the center of de-levering as opposed to accelerating growth.â€

Japan called deflation in an earlier post today. The Bundebank called recession lasting at least another 3 years. Sounds like deflation to me.

More money printing 'needed' then.

Why one earth would Western governments, up to their necks in debt, NOT simply turn on the printing presses at full tilt to avoid deflation? For countries like the US and UK their debt is denominated in their own currencies, they will simply print it if needs be.

[loginandtonic]

Contrary to popular belief you can (and should) eat gold. Known as the Philosopher's stone, that's what allowed Egyptian Pharoahs to live several hundred years. You can make white powder gold very cheaply but you need real gold to make the good stuff.

already been thought of, Terry's All Gold

(now probably owned by Nestle)

[libspero]

More money printing 'needed' then.

Why one earth would Western governments, up to their necks in debt, NOT simply turn on the printing presses at full tilt to avoid deflation? For countries like the US and UK their debt is denominated in their own currencies, they will simply print it if needs be.

Possibly, however if they want their creditors to keep funding their deficits they need to convince them otherwise.

Edited September 29, 2009 by libspero

[Georgia O'Keeffe]

Its Going To Be flation

[Tricksy]

does he understand deflation

I think he probably does lryms. And he knows a bit about bonds in general having bought and sold a few over the years.

[Neverland]

you're already paying more than that, schmucko.

40% income tax, 10% NI, 13% employers NI??? 17.5% VAT on almost everything you but, car tax, council tax, tv tax fuel duty, booze tax.. you probably get to 'keep' about 12% of 'your' income.

Keep payig, sucker. The rest of us are enjoying the free ride.

Actually thanks to various tax breaks and having my own business I worked out I probably pay 20-25% tax on my income despite being a "higher earner"

So f--k you

[lowrentyieldmakessense(honest!)]

I think he probably does lryms. And he knows a bit about bonds in general having bought and sold a few over the years.

yeah

but he got bailed out last year

[lowrentyieldmakessense(honest!)]

yeah

but he got bailed out last year

http://clickbroker.blogspot.com/2008/09/pi...ng-for-his.html

PIMCO Bill Gross’ September 2008 “Investment Outlook†asks us to cry for him because he purchased distressed assets too early. Gross complains about deleveraging by not only Fannie Mae (FNM), Freddie Mac (FRE), investment and commercial banks, and hedge funds, but also by individual households. This deleveraging has caused 30-year bonds rates to be 75 basis points higher than they should be and assets prices to drop by over 10%.

Gross claims that we have not experienced an over 10% decline in asset prices since the Great Depression. He cites the vicious cycle of declining asset prices and margin calls. Normally the downward spiral ends when bargain hunters or vultures start seeing value. Gross is worried for the investors (including himself) that entered too early.

PIMCO participated in the more than $400B of bank and finance company recapitalizations. Now PIMCO, hedge funds and sovereign wealth funds [sWF] are all underwater. With risk adverse banks and undercapitalized GSEs pulling back, Gross is calling for “new balance sheets†pumped by the Treasury to stop asset deflation. Gross does not hide his disappointment in the Treasury for not using Fannie and Freddie as its vehicles to prop up mortgage assets.

Gross has gone from being subtly political to downright pushy lately:

“If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury – not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions. A 21st century housing-related version of the RTC such as advocated by Larry Summers amongst others could be another example of the government wallet or balance sheet that is required during rare periods when the private sector is unable or unwilling to step forward.â€

Gross is begging the Treasury to support the assets on his books for the public good. At the same time he sends the shareholders of financial institutions to the alter to be slandered. In a bit of public service, he offered to let PIMCO invest in the GSEs alongside of the Treasury, with the same benefits and protection. Treasury Secretary Paulson knows Gross is disingenuous and did not take the bait.

Gross is unwilling to accept that deleveraging takes time. This afternoon on CNBC he was practically ordering Paulson to disregard moral hazard and Republican politics for the sake of saving PIMCO. Then he threatened to withhold PIMCO investments in financial institutions if Paulson does not play ball.

[Realistbear]

http://clickbroker.blogspot.com/2008/09/pi...ng-for-his.html

QUOTES SIG: The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.

This sounds a bit familiar as there was a rebel some time ago who disliked bankers and caused a major disruption in their banking facility which caused the banksters to have him killed. Those same banksters seem to be still around doing much the same sorts of thing.

[Realistbear]

Naughty Bill:

http://www.bloomberg.com/apps/news?pid=206...id=aEMeIGVXfVFc

Pimco Wins, American Loses as Fund Investors Miss Stock Rally

Share | Email | Print | A A A

By Charles "Chuck" Stein and Christopher "Chris" Condon

Sept. 30 (Bloomberg) -- Mutual-fund investors are mostly sitting out the stock-market rally that lifted share prices 57 percent since March, helping bond manager Pacific Investment Management Co. increase sales while American Funds loses assets.

Bond funds attracted net deposits of $209.1 billion in the first eight months of the year while stock funds drew $15.2 billion, according to Morningstar Inc., the Chicago-based research firm that tracks the $10.6 trillion industry. Nine of this year’s 10 best-selling funds buy bonds and only one, Vanguard Total Stock Market Index Fund, focuses on equities.

By putting money into bond funds in 2009, investors missed an opportunity to increase their stock fund holdings during a rally that added $3.5 trillion in market value to the Standard & Poor’s 500 Index since it reached a 12-year low on March 9. Martha Schilling, a financial planner in Dresher, Pennsylvania, said many of her clients were shaken by stock market volatility over the last 18 months.

“Owning bonds is giving them the ability to sleep better,†Schilling said in a telephone interview.

Investors still benefited from existing stock holdings. As of Aug. 31, there was $4.51 trillion in stock mutual funds and $1.97 trillion in bond funds, according to the Investment Company Institute.

The trend in favor of bond funds has benefited Pimco, based in Newport Beach, California. Pimco funds took in $45.3 billion in the first eight months of 2009, second to Valley Forge, Pennsylvania-based Vanguard Group Inc., which captured $65.6 billion, according to Morningstar. Vanguard, the largest stock and bond fund manager, oversees $961 billion in fund assets, compared with $279 billion for Pimco.

Pimco Total Return

Pimco, a unit of Munich-based insurer Allianz SE, reaped inflows of $31 billion in its $178 billion Total Return Fund, the most among all funds. Pimco Total Return, the world’s biggest bond fund, is managed by Bill Gross and gained 4.8 percent in 2008, Bloomberg data show. The fund advanced 13 percent this year through Sept. 28.

“That fund has become everyone’s safe haven,†Geoff Bobroff, president of Bobroff Consulting in East Greenwich, Rhode Island, said in an interview.

American Funds experienced outflows of $17.4 billion through August, the most of any fund lineup, Morningstar data show. Four of the five funds with the biggest outflows were American Funds. The funds are run by Los Angeles-based Capital Research & Management Co., a unit of Capital Group Cos.

___________________________

"The fund advanced 13 percent this year through Sept. 28." I bought into PIMCO's bond fund and I am not so sure that a 13% low risk gain was "sitting out the SM rally? Looks like Vanguard are quite a bit bigger than PIMCO which is often accused of driving the market.

[azogar]

i see deflation as well, but i wear these spectacles

[azogar]

gold back over $1000

yet again the Realistbear Contra Gold Indicator (RBCGI) working to full effect

[Realistbear]

I sold my horde of sovs back in 1980 at somewhere around $800 per ounce. If I had kept invested until now I would not be a happy camper.

Saw a gold dealer in the Churchill Square mall in Brighton over the weekend. Buying gold on the spot. Surely a sign of the end.

But then again, could gold be in a new paradigm and a one-way bet?