Bill Gross: Skunked
April 11th, 2011Via: Pimco:
…the true but unrecorded debt of the U.S. Treasury is not $9.1 trillion or even $11-12 trillion when Agency and Student Loan liabilities are thrown in, but $65 trillion more! This country appears to have an off-balance-sheet, unrecorded debt burden of close to 500% of GDP!
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…the only way out of the dilemma, absent very large entitlement cuts, is to default in one (or a combination) of four ways: 1) outright via contractual abrogation – surely unthinkable, 2) surreptitiously via accelerating and unexpectedly higher inflation – likely but not significant in its impact, 3) deceptively via a declining dollar– currently taking place right in front of our noses, and 4) stealthily via policy rates and Treasury yields far below historical levels – paying savers less on their money and hoping they won’t complain.
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Related: PIMCO Goes Short U.S. Government Debt
Via: Reuters:
PIMCO has shifted to a short position in U.S. government-related debt in the world’s largest bond fund, while also raising cash holdings in a sign of the asset manager’s serious concerns about the U.S. fiscal outlook.
The portion of PIMCO’s $236 billion Total Return Fund held in U.S. government debt, including U.S. Treasuries, was -3 percent of total assets in the fund as of March, down from zero in February, the firm’s website showed.
Cash equivalents, securities with maturities of less than a year, rose to 31 percent of the fund’s assets compared with 24 percent in February.
PIMCO and its outspoken co-chief investment officer Bill Gross have been raising alarm this year about who will support Treasuries once the Federal Reserve ends its bond purchase program as scheduled in June.
The Newport, California-based fund manager shed all its U.S. government-related debt holdings earlier this year and has begun to wager against the asset class.
