Bill Gross and his "Ring of Fire"
OperationButter
Posts: 1,672 ✭✭✭
From article:
Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.”
http://www.pimco.com/EN/Insights/Pages/Damages.aspx
Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.”
http://www.pimco.com/EN/Insights/Pages/Damages.aspx
Gold is for savings. Fiat is for transactions.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
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<< <i>What about his bond fund? I am dabbling a little into bonds(including his) with my 401k, but only at about 10%, rest is still in cash. >>
From his end of August Outlook:
With long Treasuries currently yielding 2.55%, it is even more of a stretch to assume that long-term bonds – and the bond market – will replicate the performance of decades past.
Link
If I was going to be invested in a bond fund, it would be his. Just my opinion. Pimco does have $1.8 trillion under management currently.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>He's the bond king, but has become extremely bullish on metals. He sold out of a lot of bonds before he realized the FED will never let them crash. >>
Exactly, he's out of his realm.
Knowledge is the enemy of fear
I knew it would happen.
<< <i>Just because the Fed will "never let them crash" doesn't mean that bonds will never crash. >>
Gross was premature - he didn't realize the FED would thow everything at them. They will eventually crash when the FED loses control of them, just a matter of time. The wormhole does have a bottom. Bill Gross will be one of the first to see it approaching.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I knew it would happen.
<< <i>They would have us all believe that they can continue the process of dollar devaluation almost indefinitely. Indeed, it's hard to predict how long it can be extended. >>
Perhaps longer than some of us will live. Been over 20 years now in Japan. As long as there are bubbles to be popped, there will be deflation to correct any inflation.
Knowledge is the enemy of fear
There are some salient differences between the economy backing the world's reserve currency and Japan's situation. You have pointed out the demographic differences, but I'm not sold on that factor as much as you are. Japan didn't ship their manufacturing overseas and they didn't kill their industries with unions and regulations. Aging population, yes - but that's a different deal.
The more critical issue is what happens if and when the creditor nations decide to work around the dollar and we lose our advantage from having the reserve currency. The reserve currency status has meant that we benefit from a lower cost structure in almost all international transactions. A rising cost structure due to the loss of reserve currency status will surely plunge our economy into a worse recession, shrinking the tax base and creating a viscious circle as government tries to capture more tax revenue by raising rates.
Instead of recognizing bad paper for what it is and allowing the big banks to implode and the economy to start making adjustments to compensate, the problem is being shifted onto the public as a liability, which will only make it harder to escape from the rising costs of servicing the national debt. That wasn't as much a problem when the debt was spread out among various maturities, but now the rollover of the debt has become constant, rather than intermittant - and the rollover is on the long bonds, not just short term notes - so there is really nowhere to run, now.
When interest rates rise, as they will undoubtedly do at some point, the interest requirement for debt rollover will virtually Explode. Going from a 0.1% rate to say, a 2.0% rate is a 2000% increase, by the way.
I knew it would happen.
Sunday we were at about $3.99 for gasoline
today we are at $4.19+
with no deliveries to small independents unless they want to pay $4.82 for low lead. The small indies are closing their pumps and we will see 50 cent increases in the next week here in SoCal.
Something is about to hit the fan. Or as they say, the defecation is about to hit the oscillation.
But, everybody knows we have no inflation. Gas increases are not inflation. They come under the category of dollar devaluation.
I always get a kick out of "core inflation number" not including food and energy. Not include food and energy? That is silly....... everything Human is about Food and Energy!!!!
With gas prices this high I really appreciate the company car more.
In God We Trust.... all others pay in Gold and Silver!
<< <i>But, everybody knows we have no inflation. Gas increases are not inflation. They come under the category of dollar devaluation.
I always get a kick out of "core inflation number" not including food and energy. Not include food and energy? That is silly....... everything Human is about Food and Energy!!!!
With gas prices this high I really appreciate the company car more. >>
If you don't like the results, change the calculations.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Really? Is the Euro a reserve currency? How about the British Pound? Both Germany and Great Britain can borrow money at almost exactly the same rates as the USA. Some might argue that the dollar has already lost its reserve status and I only need to point to the thread I started today with all the comments about "petrodollars" and other countries not accepting the dollar.
Perhaps what we fear so much has already happened?
Knowledge is the enemy of fear
<< <i>If you want to see first hand the petrodollar decline,
Sunday we were at about $3.99 for gasoline
today we are at $4.19+
with no deliveries to small independents unless they want to pay $4.82 for low lead. The small indies are closing their pumps and we will see 50 cent increases in the next week here in SoCal.
Something is about to hit the fan. Or as they say, the defecation is about to hit the oscillation.
But, everybody knows we have no inflation. Gas increases are not inflation. They come under the category of dollar devaluation.
When gas went from 4.19 to 3.99 earlier this summer did we have deflation?
Knowledge is the enemy of fear
I went down, down, down...
And the flames went higher.
And it burned, burned, burned...
That ring of fire, that ring of fire.
The Man, Johnny Cash
I knew it would happen.
<< <i>
<< <i>Just because the Fed will "never let them crash" doesn't mean that bonds will never crash. >>
Gross was premature - he didn't realize the FED would thow everything at them. They will eventually crash when the FED loses control of them, just a matter of time. The wormhole does have a bottom. Bill Gross will be one of the first to see it approaching. >>
Virtually every one is looking for a decline or a crash. I blogged about a survey of major money managers (Bespoke survey) back in August and if I recall correctly, I think 93% were bearish on U.S. Treasuries. Markets rarely crash when everyone is anticipating a crash and playing it safe. Many pro traders are continually stabbing at the short side of bonds, so far with little to show for it considering the moves in other assets.
Gross certainly was one of the first, he called top in bonds several years ago, and got burned by pulling out of the treasury market. Gross is a smart guy, but smart doesn't mean he can predict the markets. He has had the extraordinary luck of being a bond guy during a 30 year bull market in bonds, likely the greatest bond bull market any of us will ever see in our lifetimes.
/edit to add: don't count on real estate. A return to 7% and then 10% mortgage rates will mean very few residential home buyers. Gold is harder to figure, but 7% guaranteed on 10 year Treasuries, and 9% guaranteed on 5-year CDs might move a lot of the money that is currently parked in gold. Rarely are calculations so easy, that a person can say that a 10-year U.S. Treasury at 7% will mean a certain price level or even earnings multiple for stocks, or price for gold. BTW, 7% is about the historical average for the 10-year since 1973 when the gold window closed (aka the start of the fiat era). At a 7% rate, the annual interest on the $16 trillion debt crosses the $1 trillion per year mark. Any operating budget deficits go on top of that.
They have proven themselves over and over again. When other notable economists were screaming TOPPPP in bonds, Hoisington based on their research, data, and skills, peerfectly called the situation... Stay with your long bonds.
And I agree with RT, as I've been saying, higher yields could prove very troublesome for PMs.
But, as scary as a 7% mortgage may sound, remember, that is the historical average. The economy has done quite well with much higher yields. In fact, I would guess that several on this forum bought houses with 12+% mortgage rates.
Knowledge is the enemy of fear
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