Talking A Fixed-Income Book

This past weekend's Wall Street Journal contained an article by Dave Kansas concerning Pimco's recent government bond sell-off and the subsequent fall in rates and corresponding rise in bond prices.

Pimco's Bill Gross apparently believed that the time is right, or nearly so, for inflation to begin to erode the value of fixed income instruments.

Of course, many forces affect US Treasuries. Phenomenon like a flight to quality from the Euro sector, or weak corporate sector performances or war can send their prices higher despite poor longer-term monetary or inflationary outlooks.

Kansas cited two bond enthusiasts, Albert Edwards of Societe Generale and Jeffrey Gundlach of DoubleLine, an investment firm, as being bullish on sluggish economic growth and a QE3 program.

Kansas closed his piece with this,

"It should be pointed out that Messrs. Edwards and Gundlach are "talking their book."....But at least they have put their money is where their mouths are."

I think Kansas has it backwards. It's not that the two investors "put their money...where their mouths are," but that they put their mouths where their money has already been placed.

It's a calculated risk that the two take as they loudly proclaim economic events which will play to their positions' advantages. We know that Fed-administered rates aren't rising any time soon. So they are unlikely to be blind-sided.

With the public finance problems in Greece, Portugal and other countries, a sluggish US economy and reported softening in China, odds are probably higher of global economic weakness rather than strength.

That suggests, unwise though it is, more central bank easing.

As to Bill Gross? He probably has the biggest bully pulpit in the fixed income world after Ben Bernanke. It's probably unwise to discount either his moves or his words. Especially when he so prominently speaks out about the former.