Pimco Bond Twit Bill Gross Tweets Again (continued)
by AL MARTIN (AL MARTIN RAW)
That's what exerted the pressure in the bond markets late last week. Then he said that the market has topped and now he's going to get short again. The minute he said that -- the bonds rallied. I bought them.
You can use what Bill Gross says now -- I do certainly and I bet others do as well because the way the market acts would suggest that I'm not the only one who trades bonds in accordance with the Bill Gross Contrary Indicator (BGCI), i.e. just do the opposite of what he does.
In another Tweet Gross says that Bonds may never enter a bear market -- "Gross: 30-yr bond bull mkt over but bear mkt begins only with consistent 2-3% real & 4-5% nominal GDP growth. Not there yet. Maybe never."
Bill Gross has gotten smarter now. He comes out with a reversal, which is about the sixth time in the last 12 months, and he keeps losing money in the bonds. Pimco's Long Term Total Return Fund had the best performance of any Treasury fund in the country for about 20 years -- but in the last couple years it hasn't. The problem is he keeps flip-flopping.
So what happened? The old timers like him -- and he has become an old timer -- keep promising that he's going too retire -- and for the sake of Pimco shareholders he needs to retire. These old timers like George Soros who has been consistently trying to short the bonds has never made any money in the bonds. Also Jim Rogers, who used to be a partner with Soros in the Quantum Fund, has also never made any money trying to short the long-dated Treasury bonds.
The problem is these guys can't get their minds around the New Reality-- that the central banks have been able to maintain a negative real interest rate environment for so long. Also they can't get their minds around the fact of the control that the central banks actually have. In that respect they're almost like the Unwashed in a way.
You have to start from this premise. Nobody that manages funds wants to admit the truth -- that the planet is fiscally exhausted and is beyond the point of no return. The problem starts with the inability to admit that. Yet the central banks' success in maintaining negative real interest rates only augments the conclusion that the planet is exhausted fiscally speaking and is beyond the point of no return.
The problem is that Pimco's Bill Gross and others like him can't believe that US Treasury 30 Year Long Bonds can consistently trade at something less than a 3% yield and that the central bank doesn't have the ability to make that happen. They are right in the respect that the central bank alone doesn't have the ability to make that happen through endless quantitative easing (QE), which means the endless repurchase of the bonds that it is selling in order to maintain interest rates at what they believe to be an artificially low level.
This is something the old timers don't want to understand because they're frightened of it. Quantitative easing wouldn't work, in terms of what it's supposed to do, maintain negative long term real interest rates at the long end of the spectrum, which is what makes the difference. The mortgage and the seven year car loan -- that's what makes the difference in terms of economic growth.
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* AL MARTIN, author of "The Conspirators: Secrets of an Iran Contra Insider," is an Independent Political-Economic Analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. He is also currently trading the commodity futures market day and night and has a teleconferencing service to facilitate transactions in the markets. This is a service for independent experienced traders.
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