Thursday, October 15, 2009


For the US, there is no need for inflation. I don't expect it either. Too much supply, not enough demand. Sad to see some of this supply will eventually be destroyed and people will lose their jobs, if not already. The USD will be weak for the very reasons it was strong: Returns in US based assets ertswhile attractive will be underperforming for sometime to come.

I am a believer of Pimco's "new normal"

Oct. 15 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., increased holdings of government debt last month and cut mortgage bonds to the lowest level in more than four years.

Gross boosted the $185.7 billion Total Return Fund’s investment in Treasuries, so-called agency debt and other bonds linked to the government to 48 percent of assets in September from 44 percent in August, according to Pimco’s Web site. The holdings are the most since August 2004.

The global economy’s “new normal” as the financial crisis eases will be characterized by heightened government regulation, lower consumption and slower growth, officials at Newport Beach, California-based Pimco have said. Investors should expect total returns on equities of about 5 percent annually as consumers curb spending and increase savings, Gross said in an interview last month with Bloomberg Radio.

The Total Return fund cut mortgage debt to 22 percent, the lowest level since February 2005, from 38 percent. Cash and equivalent securities comprised 2 percent, rising from negative 10 percent, according to the Web site. The fund can have a so- called negative position by using derivatives, futures or by shorting. Pimco is a unit of Munich-based insurer Allianz SE.

Gross said on Sept. 28, he had been buying longer maturity Treasuries in recent weeks as protection against deflation.

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