Putting His Money Where His Mouth Is

More often than is generally realized, the assessments offered by pundits about a particular policy, or 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 of journalistic and academic commentary – which is not very good — would change if every opinion writer had to put their money where their mouth was. Indeed, one wonders how much punditry would be left.

It is, therefore, refreshing to see one commentator who is putting his money, or more precisely the money he has been entrusted  to manage, behind his opinions. Bill Gross, who runs a US$326 billion bond fund at Pimco, is shorting the U.S. Treasury bond market. For those of you not familiar with financial markets lingo, 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 eventually compel the U.S. government to stealthily default on its debt. Over the more intermediate term, Mr. Gross argues that the prospective winding down of QE2 - the U.S. Fed’s second round of quantitative easing –  means that a major source of price support is about to 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.

Leave a Reply

You must be logged in to post a comment.