February 1, 2012

PIMCO’s Bill Gross, Bleak Times Ahead?

PIMCO’s Bill Gross, bleak times ahead? 
PIMCO’s Bill Gross, the death of abundance. 
What incentive does a bank have to buy two-year Treasuries at 20 basis points when they can park overnight reserves with the Fed at 25? What incentives do investment managers or even individual investors have to take price risk with a five-, 10- or 30-year Treasury when there are multiples of downside price risk compared to appreciation? At 75 basis points, a five-year Treasury can only rationally appreciate by two more points, but theoretically can go down by an unlimited amount.
A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time.

Tags: pimco bill gross, death of abundance, bill gross credit contraction, bill gross on future, delevering of economy, effects of zero percent interest rate, bad effects of low interest rates