Wednesday, January 6, 2010

Absence of ‘Sugar Daddy’ to Hurt Markets, Gross Says (plus video)

From Bloomberg:
Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said asset markets in the U.S. and U.K. may suffer as governments withdraw stimulus measures.

“Most ‘carry’ trades in credit, duration, and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their ‘sugar daddy,’” Gross said in a commentary posted on Newport Beach, California-based Pimco’s Web site today. In carry trades, investors borrow at low interest rates to purchase high-yielding assets.

Pimco recommended “shaking hands with the government” last year as the Federal Reserve and Bank of England embarked on so-called quantitative easing programs where they acquired assets including mortgages and government securities to reduce borrowing costs and stimulate growth. The Fed and U.S. agencies have lent, spent or guaranteed $8.2 trillion to lift the economy from the worst recession since the Great Depression, based on data compiled by Bloomberg.

“We now ponder ‘which’ government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries,” Gross wrote.

Outstanding U.S. public debt has climbed 58 percent to $7.175 trillion as of November from $4.537 trillion in December 2007 as the government has borrowed to fund two stimulus programs and fund record budget deficits. The U.S. budget deficit reached $1.4 trillion for fiscal 2009....MUCH MORE

And from CNBC:

HT on the video to Pragmatic Capitalist who wrote:

On the back of yesterday’s negative report on almost all assets, Bill Gross answers some important questions with regards to his outlook:

And had this later post:


Deep thoughts on 2010 from PIMCO’s bond guru:

Quixotic journeys often make for great literature, but by definition are rarely productive. I am, after all, referring to windmills here – not their 21st century creation, but their 17th century chasing. Futility, not productivity, was the ultimate fate of Cervantes’ man from La Mancha. So it is with hesitation, although quixotic obsession, that I plunge headlong into a discussion of American politics, healthcare legislation, resultant budget deficits and – finally – their potential effect on financial markets. There will be windmills aplenty in the next few pages and not much good can come of these opinions or my tilting in their direction. Still, I mount my steed, lance in hand, and ride forward.

Question: What has become of the American nation? Conceived with the vision of liberty and justice for all, we have descended in the clutches of corporate and other special interests to a second world state defined by K Street instead of Independence Square. Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people. Washington consistently stoops to legislate 10,000-page perversions of healthcare, regulatory reform, defense, and budgetary mandates overflowing with earmarks that serve a monied minority as opposed to an all-too-silent majority. You don’t have to be Don Quixote to believe that legislators – and Presidents – often do not work for the benefit of their constituents: A recent NBC News/Wall Street Journal poll reported that over 65% of Americans trust their government to do the right thing “only some of the time” and a stunning 19% said “never.” What most politicians apparently are working for is to perpetuate their power – first via district gerrymandering, and then second by around-the-clock campaigning financed by special interest groups. If, by chance, they’re ever voted out of office, they have a home just down the street – at K Street – with six-figure incomes as a starting wage.

What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return. The fact is that American citizens have never been as divorced from their representatives – and if that description fits the Democratic Congress now in control – then it applies to Republicans as well – past and present. So you watch Fox, or is it MSNBC? O’Reilly or Olbermann? It doesn’t matter. You’re just being conned into rooting for a team that basically runs the same plays called by lookalike coaches on different sidelines....MORE