Bill Gross Admits He Goofed on Treasurys

By on August 31, 2011

Famed bond fund manager from PIMCO, Bill Gross, was bearish on Treasury bonds for the last few months. He first turned cautious when the 10-year Treasury note yielded 3.5%. Since then the yield has collapsed to under 2.2%, and even dipped below 2% earlier this month.

Gross’s bearishness was predicated on the conclusion of Fed’s Treasury bond buying when the QE2 program ended on June 30th. Since then yields have collapsed, demonstrating that no single entity, no matter how pervasive, can move the market in the face of a sea change.

Gross now wishes he had more Treasurys as he doesn’t believe the economy can achieve 2% growth. His flagship fund’s performance has been decimated, landing it in the bottom 15% of its bond fund category.

Although Gross missed the boat on the Treasury trade, he did have positions in other bonds and still believes there are opportunities in Mexico and Brazil which have higher yields and less debt in relation to GDP.

SMA Comment: Gross has been around for eons (a regular guest on Louis Rukeyser’s Wall Street Week in the 1980’s) and has been heralded for his ability to see the big picture. However, in a familiar theme, Gross follows a long line of gurus who have proven to be fallible.

Surprisingly, Gross made his judgmental error while violating the tenants of PIMCO’s idea of a “new normal” which preaches a slow growth gospel. Gross is now so negative on the economy, which he says has structural impediments, the theme can be revised to a “new normal minus.” Gross is now getting back into Treasurys after their huge rally, so he may be setting his fund up for a classic whipsaw.

One Comment

  1. Jamie Varner

    September 3, 2011 at 5:16 pm

    They all fall eventually. At least Gross admits to his failure as an investor.

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