More often than is generally realized, the assessments offered by pundits about a particular policy, orÂ some element of the current politico-economic situation, can be translated into a money bet. An op-ed columnist, for example, who claims that the government’s failure to spend additional funds will undermine the prospects of economic recovery is effectively saying that a short position on the S&P 500 index will turn out to be a money-maker. One wonders how the predictive quality ofÂ journalisticÂ and academic commentaryÂ – which is not very good — would change if everyÂ opinion writerÂ had to put their money where their mouth was. Indeed, one wonders how much punditry wouldÂ be left.
It is, therefore,Â refreshing to see one commentator who is putting his money, or more precisely the money heÂ has been entrusted Â to manage, behind his opinions.Â Bill Gross, who runsÂ a US$326 billionÂ bond fund at Pimco, is shorting the U.S. Treasury bond market. For those of you not familiar with financial markets lingo,Â shorting a security is a bet that its price will decline.
As mentioned in a previous post, Mr. Gross believes that escalating pension and health care benefits will eventuallyÂ compel the U.S. governmentÂ to stealthily default on its debt. Over the more intermediate term, Mr. GrossÂ argues that the prospective winding down ofÂ QE2Â -Â the U.S. Fed’s secondÂ round of quantitative easing –Â means that a major source of price support isÂ about toÂ be taken out of the bond market.
From an Austrian point of view, it must be said, a short position on US government bonds makes perfect sense.