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Biggest Bond Fund In World Dumps U.s. Treasury Bonds

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Biggest Bond Fund in World Dumps U.S. Treasury Bonds

The Economic Collapse

March 10, 2011

Bill Gross, the manager of the biggest bond fund in the world, has forgotten more about bonds than most of us will ever learn. That is why the big move that PIMCO has just made is so unsettling. At one time PIMCO held more U.S. government debt than any other bond fund on the globe, but now news has come out that they have gotten rid of all their U.S. government-related securities. So should we be alarmed? For months Gross has been warning that the bull market in bonds is coming to an end, and now it looks like he is putting his words into action.s Gross has often publicly decried the rampant government spending that has been going on over the last several years, and apparently he has seen enough. He is taking his ball and he is going home. This really is a stunning move by PIMCO. Gross must really believe that something fundamental has shifted. Gross didn’t get to where he is today by being stupid. But so far world financial markets are taking this news in stride. Nobody seems all that alarmed that the largest bond fund in the world has dumped all of their U.S. Treasuries. But with world financial markets in such a state of chaos right now, shouldn’t we all take note when one of the biggest players in the game makes such a bold move?

Gross believes that interest rates on U.S. Treasuries are way too low right now and that they will start going up when the Federal Reserve ends the current round of quantitative easing in June. Gross has indicated that if interest rates on U.S. Treasuries go up high enough, PIMCO might get back in.

But if interest rates do start going up that is going to make servicing the monolithic U.S. national debt much more expensive, and that would not be good news for U.S. government finances.

But would the Federal Reserve really allow interest rates on U.S. Treasuries to go up substantially? Wouldn’t they just step in at some point and start buying U.S. government debt again?

Probably.

But the truth is that the Ponzi Scheme of the U.S. Treasury issuing bonds and the Federal Reserve buying them up cannot last forever as Gross noted in his March newsletter….

“Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t.”

Gross also noted in his newsletter that the Federal Reserve is currently buying up about 70 percent of all new U.S. government debt.

So what is going to happen when that stops?

Nobody knows for certain, but it sure is going to be interesting to watch.

The market for U.S. Treasuries has not been working “normally” for quite some time now, and there is some legitimate doubt as to whether it will ever fully get back to “normal” again.

Meanwhile, the sovereign debt crisis in Europe continues to get even worse.

The yield on 10-year Portuguese bonds is now above 7 percent, the yield on 10-year Irish bonds is now above 9 percent and the yield on 10-year Greek bonds is now above 12 percent.

Most people expect European leaders to soon come to an agreement to add billions more to existing bailout funds, but there is no guarantee that is actually going to happen.

A d v e r t i s e m e n t

In fact, the Germans are making waves by insisting that the financially troubled nations in the EU must be willing to agree to limits on their future budget deficits. A recent article on CNBC described the situation this way….

Before the Germans will agree to pump in extra cash from their taxpayers, backed by the French, they want each leader to agree to legislation at home that will limit the size of their future national deficits. The Greeks are already refusing point blank. Things may boil to the surface at an extraordinary summit on Friday.

So what if an agreement can’t be reached?

Could the dominoes in Europe start to fall?

Very few people actually want to see a wave of sovereign defaults in Europe, but the current situation cannot go on forever. At some point the Germans are going to get sick and tired of bailing out other members of the EU.

The global addiction to debt is about to start having some very serious consequences.

For decades, most of the governments of the industrialized world have been running up debt as if it would never come back to haunt them. Now the world is absolutely covered in red ink and everyone is looking for a way to solve the problem.

But there is not going to be a debt jubilee to come along and save everyone. This debt bubble is either going to keep expanding or it is going to burst.

At one point, at least some of the debt-ridden nations will try to inflate their way out of debt by recklessly printing money. To a certain extent that has already been going on. But it will not work. It will only cause a whole lot of inflation.

This is just more evidence that any economic system based on debt is destined to fall. When we allowed a private central bank to start issuing debt-based currency in this country back in 1913 we set ourselves up to fail. As I have written about previously, the Federal Reserve should never have been allowed to come into existence, and it should have been shut down by Congress long before now.

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But now the United States is caught in the same debt trap that most of the other nations around the world are caught in. The global addiction to debt is going to have some very, very serious consequences. Instead of moving into a great time of peace and prosperity, everything is about to come falling apart.

Things could have been different. Things did not have to turn out this way. But here we are on the edge of one of the biggest financial disasters in human history and most Americans still don’t understand what is happening.

To print, or not to print, that is the question? Either way we are screw*d

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The only US government bonds I would even consider holding are TIPS. For 30 years, you get 2% over inflation. However, I still think in the long run, the stock market will beat that return.

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can someone answer this question as ive always been curious about it.

when the fed buys t-bills to pump money into the economy and take t-bills out of the market, what happens to the interest rate on those t-bills i.e does the government still have to pay it to the fed?

technically the fed have just taken hold of the t-bills on their own balance sheet - but have they in essence destroyed the debt if interest is no longer paid by the government for those t-bills?

Edited by mfp123

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can someone answer this question as ive always been curious about it.

when the fed buys t-bills to pump money into the economy and take t-bills out of the market, what happens to the interest rate on those t-bills i.e does the government still have to pay it to the fed?

technically the fed have just taken hold of the t-bills on their own balance sheet - but have they in essence destroyed the debt if interest is no longer paid by the government for those t-bills?

Erm, i'm far from an expert, but i think the government still pays interest to the FED, which could generate a profit for it depending how the value of it's bind holdings fluctuate.

Anyway, onto the UK.... does all this mean that Cameron and co are correct in their approch to our debts and the cuts in the public sector. It'd be interesting to see what happens if these other countries go under, the coilition could look like saviours if we're one of those that survive. Lets not forget we had the worst deficit in the world in 2009/10. I think cameron and co have shown that they mean business so I think that and our independance will be enough to keep us safe!

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PIMCO offices hit by a terrorist attack.... there were no survivors as the ambulances could not get to the hospital even though the hospital was less than half a mile away. :o:lol:

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To print, or not to print, that is the question? Either way we are screw*d

Thats not the question... the question is shall we print 1 trillion an hour or 2 trillion an hour. :D

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the answer ive found out is that the central bank does indeed pocket the interest, and a proportion of the profits goes back to the treasury.

it is far more corrupt than i originally thought - there is no balancing act at all. we all know that the bank of england prints money, but i think most people, like myself, thought they had to undo this at a later date - not so it seems.

the government issues debts, and takes your money.

the bank of england prints money to buy the debt back off you.

the government pays the BOE the interest on that debts.

any profits that the BOE gets goes back to the government minus operating costs.

i.e the government pays the BOE interest with its left hand, and collects it back again as profits with the right hand...

it is counterfeiting at the highest order. it is illegal for any government to print money to pay for things. this form of circumventing that rule should go to court, and be brought to the public, and the medias attention.

Edited by mfp123

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I wonder why Pimco have decided to publicise the fact that they're getting out of US Treasury bonds so loudly and prominently? If I thought that these bonds were about to go seriously south, I'd keep very quiet, close down my positions and advise my clients to do likewise. Are they actually trying to trigger a sell-off? Or perhaps taking the view that potential investors in their funds are likely to share their view about the bonds, and therefore want to publicise the fact that they're exercising common sense?

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It's ok, the Fed will buy them all.

Exactly. Didnt Gross say something like 'im buying whatever i know the govt(taxpayer) will buy later on.

Ie crap.

Too big to fail and all that.

I take this to mean the zero hour has arrived.

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I have a small amount in PIMCO and WEITZ bond funds and both have risen in the last few days. But then again I have noticed IR rise on my US monmey market funds--the opposite direction to the Treasuries. :blink:

This may be a reverse pump and dump by Bill. Bit obvious though. :blink:

Looks like the big correction is brewing and we may have a black one tomorrow--more than 10% down? That said it will probably do the opposite as we have a double contrarian thing going on these days. Gold got hit hard today when you would imagine it soaring due to unrest. Perhaps the deflationary black hole is emerging.

$ doing okay as things may get so bad in the ME that the traditional flight to safety may be going on (US $ and US Treasuries).

I think I'll do nothing and just sit tight, happy in the knowledge that stocks are about 3% of my overall investments.

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      • down 5% +
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