In recent weeks it was reported that Bill Gross, head of Pimco, the largest bond shop in the world sold all Treasuries in the massive Pimco total return fund. Pimco is as close as one can get to the Treasury and the Federal Reserve. Former Fed Chairman Alan Greenspan became a special advisor to Pimco and being the largest bond shop in the world, Pimco is instrumental in ensuring funding for Uncle Sam and was also instrumental in the bailouts of Freddie and Fannie.
However, Pimco and Gross are notoriously flaky in their public statements and behavior. In the wake of the financial crisis, it was Pimco who clamored for increased government spending and for a bailout for Freddie and Fannie. Pimco invested heavily in those higher yielding bonds on the basis that the government would bail out bondholders. Only a few years later, we have Gross at the other end of the spectrum, noting the obvious about our deficits and national debt.
So we should all take Gross’ comments at face value and dump our bonds?
The picture shows TLT (NYSE:TLT) and the CCI (Commodities). Interesting how Bonds have put in another bottom and have continued their pattern of higher lows. We also note the negative correlation between Bonds and Commodities. Its not a perfect correlation but its an important indicator. The fact that Bonds have put in another bottom and Commodities are well above their long-term moving averages, is reason why we are near-term cautious on Commodities.
The bottom line is one has to study the charts, sentiment indicators and macroeconomic factors rather than listen to so-called experts like Bill Gross, Warren Buffet or any Federal Reserve member. For all we know, Gross could have sold his holdings six months ago and went long days after his public statement.
The inflation trade is raging but Bonds have put in a low. The US Dollar is reaching an oversold extreme in terms of price action and sentiment. This could be the beginnings of a pause or correction in the Commodities bull market. For more analysis and insights, consider a free 14-day trial to our premium service.
Jordan Roy-Byrne, CMT
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