PIMCO`s Bill Gross has published its February Investment Outlook at the company`s website where he is making the case for an exit from U.S. government debt in favor of non-U.S. developed nations. His arguments, while passionately argued, are neither new nor innovative, but they make a good reading as they are being presented in a coherent and complete form.
His case is a familiar one in that it focuses on the distortive impact of govenment action on the functioning of free markets and risk pricing. With respect to the recent economic situation, he laments the new role played by "money" as the main determinant of economic trends and momentum versus the traditional function as the medium through which such trends would be communicated, activated and rebalanced in time. While we agree to most of his commentary, we dissent that the significance of these events go beyond the short-term fluctuations of his favored markets, and as they are built on paradoxes, they may sustain themselves in a seemingly cooperative fashion with old-fashioned risk aversion in spite of our protests and puzzlement. In other words, it is possible to see U.S. Treasuries favored even as inflation rises, not because it makes sense, but because the whole system is unsustainable from multiple angles and there is not particular reason for a correction in one aspect as long as the other sides of the puzzle remain in place. If the Chinese can still inflate their bubble, why can`t the U.S. do the same?
Bill Gross is said to be directing his fund to gradually reduce its exposure toU.S. Treasuries, with the latest numbers showing a government position at about 12 % vs. December`s 22%. He has never been a great bull on government paper, and at the height of the Bear Sterns bailout, or in the prelude to the Lehman event, he is on record as saying that Treasuries are not right place to be in light of all the risks and dangers that U.S. economic policy entails. His prognostications have not been fulfilled so far not because there is anything wrong with his analysis, but because the air of moralism, or righteousness adopted by him his kind lacks a basis in reality when contrasted with facts. It is impossible to imagine anyone being right in this system, at it makes no sense to blame the Fed or the Chinese government alone for what has been the most comprehensive and cooperative speculative craze of human history. When we speak of the collapse of 2008, or the recent bubbles still being popped in the EM world, we are speaking about the purchases of retirees, speculations of pensioners, and the overinvestment of conservative industrialists as much as we are talking about leverage, or hedge funds, or financial engineering. In that sense, the idea that one can take a moral, or commonsense position and justifiably criticize the Fed, for instance, from a safe and immune vantage point is nonsensical. Not even gold buyers can defend their actions on the basis of rationality since gold has been in the speculative red-zone for quite some time. We do not believe that there is a safe haven, because the journey must continue, the movement must not stop in order to mask the contradictions in the system.
Time will tell if Mr. Gross is right or wrong. But we are skeptical, also because the alternatives that he seems to propose in the developed are hardly any better than anything that the U.S. government can offer. Is Europe, or Japan pursuing more sensible policies nowadays than the Americans? We won`t tire the reader by repeating the well-understood problems of these nations, but whatever they are, they should be enough to make any of us question the wisdom of U.S. doomsayers regardless of the political camp, or the economic philosophy envisioned.
0 comments:
Post a Comment