Thursday, May 21, 2009

Bill Gross: Do you trust him?

No... but he's got no love for the Empire, I can tell you that.

This morning, S&P put the AAA rating of the United Kingdom on negative outlook. Generally when S&P puts a negative outlook, it merely means they leaning toward a downgrade without any particular urgency. In this case, S&P says they need to see some progress made by an incoming British government on their burgeoning debt.

Since the U.K. is generally seen as the third most stable (U.S., Germany) of the big western economies, its not a big leap to say that the U.S. could be next. Its a perfectly legitimate concern. S&P mentions their concern that British debt could rise to 83% of GDP by 2013. In the U.S., its already 80%!

What would happen if the U.S. lost its AAA? Very hard to say. Foreign investors would still have the problem of finding someplace to put their money. I'd be surprised if the U.S. would lose its AAA rating, but say, France and Germany hold on to their ratings. Japan is already AA. It might result in a revision of how foreigners view ratings in general.

In other news, how is General Electric AA+ and stable if the U.K. needs to be downgraded? How is Assured Guaranty still AAA and stable?

Enter Bill Gross, always eager to talk his position. He stokes the fire by saying that the Treasury market is selling off due to ratings fears. Maybe. Indeed, I've heard that Asia is selling today. But always remember, when Bill Gross talks, he is always always always talking from position. So I'm assuming Gross is short Treasuries and today is adding.

I don't think really think the whole ratings thing makes sense to explain the Treasury sell-off. Here is the intra-day on Treasuries. S&P comes out with their report on the U.K. at 4:20 AM.

Treasuries are actually higher all during the Asian and European sessions, and its only once the U.S. session really gets going that the bond market sells off.

A better explanation is the continued belief that the Fed is defending some level on Treasuries. Admittedly, I thought they would, but the evidence is clear that they aren't. Here are the Fed's Treasury purchases since the program began:

Traders keep hoping the Fed will increase their POMO buys, whereas this chart clearly shows they keeping to the $7-8 billion range in the belly and about $3 billion on the long end. Their reluctance to increase purchases shows they either have no particular target or their target is much higher than where we are.

No sense in getting in the way of the Treasury negative momentum here. I'm probably not a buyer until 3.60%.


Donald Pretari said...

"But always remember, when Bill Gross talks, he is always always always talking from position"

If everybody knows this, how could it matter? And what good would it do him?

Don the libertarian Democrat

mezzfin said...

So, is S&P somehow under the impression that its AAA ratings criteria are really absolute instead of relative? In the land of the blind, the one-eyed man will always be king, no matter how badly the rating agencies wish he had two.

ewfgwerfewf said...

NEW YORK (Reuters) - Stock futures extended losses on Thursday as further labor market

weakness fueled doubts about a quick economic recovery and Britain's reduced rating outlook

signaled more fallout from the credit crisis. S&P 500 futures fell 10 points and were below

fair value, a formula that evaluates pricing by taking into account interest rates,

dividends and time to expiration on the contract. Dow Jones industrial average futures shed

90 points, and Nasdaq 100 futures dipped 15 points.

Shorty got burned..squeeze

dow 10000 soon?

Unknown said...

Bill Gross may have a habit of advancing his positions when he speaks. But in this case I think he is right. Our debt load is getting out of hand. When you factor in the various long term entitlements and other obligations it looks positively frightening. Of course people will point out that there is no real danger of defaulting on our debt. After all there is Ben "bubbles" Bernanke standing by with his printing press...

Short and intermediate term foreign bonds are starting to look more attractive lately. That along with gold and silver.

Unknown said...

are there any long term buyers like pension funds that are still buying treasuries or is it all just for a trade?

maximus said...

just a quick note to let you know this post is listed as one of my BEST for this week.

To see this and other BEST AND WORST posts of the week go to

And if you have a blog roll and would consider including mine it would be greatly appreciated.

Thanks again for the outstanding post and your efforts to get the truth out to the public.


In Debt We Trust said...

Hmmm, I thought we had good auction results today. What happened mid-afternoon? 10 year at 3.5% again!

When is the Fed going to step in? I'd like to see a major plunge in the dollar index so I can cash out my puts.

John (Ad Orientem) said...

I'd like to see a major plunge in the dollar index so I can cash out my puts.LOL If you were on the Titanic you'd probably ask for some ice with your scotch. Hang on friend. It's coming. Boy is it coming...

In Debt We Trust said...

John (Ad Orientem), another thing I have been waiting for is USDJPY to climb higher. But until now, it looks like the Japanese have ceded ground to the Americans.

Well, the BOJ governor is due to speak tomorrow so I might get my wish.

Vanessa said...

I can’t trust anybody these days, least of all those quiet talking Bankers. Even if doom is around the recession, they'll not tell you. Instead they'll lure you to save & invest more, especially with 'them'. Gold is good, Physical is safer, cannot trust EFTs' either, especially if some bank is the guarantor. Just tell nobody you've holding gold, not even your (banker) neighbor. Life is too precious!