Monday, January 12, 2009
Following Bill Gross
"William H. Gross has buying power few can match. The founder of money manager Pimco in Newport Beach, Calif. oversees $790 billion, most of it invested in fixed income. But now there's a new bully on the block: Uncle Sam. ... In the past year, the 64-year-old King of Bonds has bought $100 billion of preferred shares and senior debt of financial companies receiving taxpayer loans. His bet is that the government will throw good money after bad rather than let them fail. ... With stocks down 40% this year, he predicts Americans will shift from risk to thrift for at least a generation. ... Gross' theory is that the government will arrange to get itself paid back and that his investors can safely travel on the government's coattails. ... There is no chance, Gross says, that the U.S. will let AIG walk away without paying [$200 billion] back. ... 'No government coming to the rescue [like this] would allow us to go back to the prior stasis.' Expect, he says, a 'lower standard of living, a threat to the dollar as a reserve currency and a decline in U.S. hegemony'," my emphasis, Bernard Condon at Forbes, 12 January 2009.
With "good money [thrown] after bad", AIG paying Uncle Sam and an end "to the dollar as a reserve currency", why own bonds? How will AIG pay Unc? Unc will print the paper, and AIG will give the printed paper back.