Bill Gross is putting his investors' money where his sizable mouth is.
Gross, who manages the world's biggest bond fund and has spent recent months jawboning about the dangers of U.S. debt, has placed a $7 billion bet against Treasury bonds, according to the latest statistics released by his Pimco Total Return fund.
At the breaking point?
Gross made a splash last month by selling all the big bond fund's Treasury holdings and calling the federal budget a Greek tragedy in the making. Now he has gone one better, leaving the $236 billion fund with a short position in U.S government debt for the first time since February 2009 – and putting a third of the fund's assets in cash.
The last time Gross was short Treasuries, he was also short cash, in a timely bet that the U.S. economy and financial markets would rebound from their meltdown lows. This time, however, he appears to be expecting something altogether different.
His fund is holding a staggering $73 billion of cash, in an apparent bet that the market recovery is on borrowed time. Gross' wager against Treasury debt was first reported on ZeroHedge.
The bet comes at a time when the government is struggling, to put it mildly, to get its budgetary act together. Congress and the White House agreed Friday to $38 billion in spending cuts, narrowly averting a government shutdown. But the agreement hardly won much of a reprieve: all eyes will now turn to the fight over raising the debt ceiling that the United States is expected to hit next month.
Gross hasn't been optimistic that our political class will avert a crisis. His Greek tragedy commentary reasons that unfunded U.S. entitlement spending amounts to five times gross domestic product – a bigger debt burden than the one in bailed-out Greece. When you consider the government came within two hours of a shutdown Friday when the sides were just a few billion apart, it is easy to be pessimistic.
Massive federal spending and full-throated political posturing is certainly a toxic combination, and the news that Gross is wagering U.S. rates will go higher won't ease the pressure on the Treasury market. The yield on the 10-year Treasury bond has risen to a recent 3.59% from a 2011 low of 3.22% on March 16.
Treasury securities aren't the only bonds Gross is betting against. Gross cut the Total Return Fund's holdings of mortgage securities to 28% of assets from 34% -- putting him on the other side of a bet that many investors, including the guys who run AIG (AIG), are making for a further recovery in that asset class.
And as Gross has made clear, it isn't just the bond market that he expects to take a hit in coming months as the Federal Reserve's quantitative easing winds down. It is not very hard to find people who expect to see the stock market take its lumps too.
All the same, it is clear that it wouldn't take much of a dip in Treasury prices to bring Pimco back to the lot to start kicking the tires again. In spite of his posturing about bond market turkey shoots and the like, Gross told Bloomberg last month he believes U.S. economic growth dictates that the 10-year Treasury should trade "with a 4% type of yield." That was before everyone started downgrading their U.S. growth forecasts, mind you.
In any case, a half-point increase in Treasury rates hardly sounds like the sort of disaster Gross has been invoking. If Treasuries do sell off in coming weeks, don't be shocked if Pimco's next report shows it nibbling again at this tepid buffet.
Economic oppression has stolen US democracy and is killing Americans. Time to take down the top one percent and restore economic freedom.
by Joel S. Hirschhorn
Sunday, April 10, 2011
Massive economic inequality is killing America and we the people. It has already killed American democracy. The rich have captured the political system so they could manipulate the economy and benefit unfairly. Economic freedom and opportunity are gone. Greed among the top one percent has succeeded so well that a true uprising and revolt by Americans, like that seen in Egypt, may be needed to restore America.
US society is riddled through and through with constant lies and political propaganda to keep Americans stupid and distracted. The truth is here, hidden from easy view for most citizens by an epidemic of dishonesty and irresponsibility among elected officials, corporate leaders, cowardly, corporate controlled mass media, and especially right-wing pundits, many of whom are in the top one percent. The truth, of course, is often revealed, but only in venues that relatively few people with sufficient intelligence and critical thinking skills access. Two recent articles should be required reading in every classroom and home.
First, some key numbers tell the true story about the decline of America in recent decades as revealed by acclaimed economist Joseph E. Stiglitz in Vanity Fair. Upper one percent Americans are now taking in nearly a quarter of the nation’s annual income and own 40 percent of the nation’s wealth. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. The top one percent’s incomes rose 18 percent over the past decade as those in the middle have actually seen their incomes fall. As the recession still hurts most Americans, especially the unemployed, hungry and foreclosed, the top one percent, many of whom created the economic meltdown, keeps their tax cuts and riches.
“Most citizens are doing worse year after year,” observes Stiglitz.
Also, in our delusional democracy run by a bipartisan corporate dictatorship: “Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent.” No surprise that those who poisoned the economy have not been prosecuted.
You cannot vote away this insanity by electing Republicans or Democrats, even those claiming Tea Party status, who mostly want to protect rich and corporate elites as evidenced by their disinterest in removing corporate subsidies and welfare, nor raising taxes on the rich. This behavior is brainless for non-wealthy Americans.
Stiglitz says: “The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.” In truth, they own our government.
The second article in The Nation by Robert Scheer smartly noted “The delusion of a classless America in which opportunity is equally distributed is the most effective deception perpetrated by the moneyed elite that controls all the key levers of power in what passes for our democracy.” Mostly ignored, “the corporate rich reward themselves in direct proportion to the amount of suffering they have caused.”
Scheer referenced this: During Clinton’s presidency the income of the top one percent increased by 10.1 percent per year, while that of the other 99 percent of Americans increased by only 2.4 percent a year. From 2002 to 2006, a period in which the top one percent increased its income 11 percent annually the rest of Americans had a truly paltry gain of 1 percent per year.
What kind of population would endure all this? Submissive, stupid and sidetracked Americans refusing to see the economic oppression strangling the nation.
To be in the top one percent you need an adjusted gross income of about $400,000, most not coming from salaries or wages. And those households with less than 5 million people total have a net worth of at least $8 million each. Do you make the cut? If not, then wake up to reality. You are a victim!
The top one percent people are the enemy. THEY have stolen your financial security and opportunity. THEY have sold us out to China and other nations. YOU have been sacrificed to satisfy their greed. You have a better chance of winning a huge lottery than becoming one of them.
Abusive inequality is no accident of history. It has occurred by design. Forget morality and fairness. The wealthiest of the wealthy have ingeniously engineered the political and economic systems to get exactly what they want and screw the rest of society. They do not fear outright revolution, peaceful or violent class war.
Pause for a moment. Think in terms of an invisible corporate dictatorship run in a bipartisan way by people who know how to use their money to retain a thoroughly corrupt political system. That is the tool used to protect themselves from the wrath of a few hundred million victims of their villainy. The economic oppression by the richest one percent is far greater than that of the British which spurred the American Revolution. We desperately need a second revolution against domestic tyranny.
In addition to the two excellent recent articles, you would benefit from examining the Who Rules America? website. If you appreciate data also peruse this excellent Mother Jones article, which points out most Americans perceive wealth distribution more fairly distributed than it really is, delusional thinking.
To sum up, those not brainwashed by political propaganda should support taking down the top one percent to take back their country. Without action more and more Americans will suffer as the middle class merges into one huge lower class.
We outnumber them. Have you had enough economic oppression? Remember, every ruling class can be brought down.
Also on Fortune.com:
- Gross calls U.S. budget a Greek tragedy
- Gross wants Treasury yields north of 4%
- Gross calls for bond market turkey shoot
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