Unemployment back up above 9%; new job numbers down

U.S. debt is not a popular growth vehicle right now, Mike. We have had the bond market propped up by $600 billion from the Federal Reserve and it made the economy look better than it was. But it was all false and it's manipulation. On top of it, the Euro has been tanking, drawing money here. But is that really a formula for success? Bill Gross at PIMCO -- probably the most successful bond investor in our time (no hyperbole) -- has dumped all U.S. treasuries from PIMCO's total return fund (the world's largest bond fund).

In one of his commentaries he wrote:

He has called the two rounds of quantitative easing a ponzi scheme.

You are so worried about oil prices, right? Look at what the government intrusion you argue for has done to CAUSE higher prices. Oil is priced in dollars. In the last decade we have devalued the dollar by more than 60 percent. That causes inflation by driving up the price of assets denominated in dollars. Our central bank's manipulation of asset prices has backfired on us -- and the world. Food and energy prices have gone up signficantly in the last year. That has hit emerging markets particularly hard, and has delayed growth in the U.S. Not to mention the inflation.

Also, the price of oil is not just a function of U.S. demand. Supply, or lack of it, tells much more of a story (this requires longer term thinking -- it will be a continual trend, with ups and downs). Oil production is declining by a health clip every year. That's because there are no new known oil reserves in the world. By 2030 the IEA believes the yearly decline in production is going to be close to 9 percent. Before the world's economies slowed down, the price was marching up. It was halted by the global recession. But you can't stop this. It is going to just keep rising. Any inkling that demand is picking up, and it is going to go up significantly from where it is in anticipation. I can't speak day to day or month to month about what is going to happen. But over the next decade, the price of oil is going to increase significantly. It isn't speculation. It's a supply issue. I posted on another thread relatively recently what Jim Rogers always says about then looking to drill under Buckingham Palace before there are any viable alternatives. It will be $300 a barrel or more by then. And the main reason is that as long-term trends, demand has picked up, and will continue to pick up. And supply is slowly dwindling.

 

A lot of money? Hardly.

Bill Gross has pretty much been consistently right for a few decades -- when it comes to fixed income investing, admittedly something I don't pay much attention to. But he's as good as it gets in that line.

Regardless, when you have a massive portfolio to manage, as he does, you can't make quick and nimble moves. He is smart to avoid treasuries, because they have been propped up by Fed Reserve games and when the ponzi scheme unwinds he won't be stuck with paper he can't unload. Treasuries have not been trading on fundamentals. They have been trading on cash injections from the Federal Reserves. Yields dropped and Gross didn't participate. But the relatively insignificant short-term gains he missed out on (and it's not like he can't find high yield corporate and cheaper emerging market plays that I would guess have rewarded him), will be rewarded when he isn't left holding increasingly worthless bonds when they are no longer propped up by the Federal Reserve's "buybacks."