Bill Gross is out with his latest misinformed commentary on the Pimco website.
Using his usual technique of (bad) sortytelling, Gross invokes the "boiling frog" parable and equates bond investors to the frog in the pot of water that is slowly brought to a boil. The frog doesn't feel the incremental temperature increase and is eventually cooked. That's what he says will happen to investors because inflation will eat away at these paltry yields. He says this even as he admits that "total returns for almost all bond categories, when you factor in positive performance and coupon income, has beat inflation any way you measure it."
Remember, Gross has been short Treasuries since April. It's something he's recently tried to back away from in comments he has made.
Then he goes on to make this amazing statement:
|"Because the QEs cover an extraordinary period of monetary policy with a limited time frame, there is not enough data to indicate whether the end of QEII will lead to higher or even lower rates, although higher is our strong preference. “Who will buy them?” remains a critical question to be answered."|
Gross doesn't see that government spending creates the funds that are used to buy Treasuries. This is why there has NEVER been a lack of buyers, ever. It is impossible under the current reality where the government pays by simply crediting bank accounts. And inestors will always buy a risk free asset that pays more than zero. If he's worried about inflation, then he is making the same mistake as everyone else. He equates QE with "printing money," even though it's not and even though it strips a hefty amount of interest income from the private sector. (This latter point he should know, but he doesn't.) Gross is a great marketer, and I guess he's a decent trader, but he may soon lose that last distinction if he remains a slave to his own dogma.