Everything comes at a cost, including the Fed's low rate policy and multiple rounds of monetary easing.
Not one to pass up a good musical reference, noted bond guru and Pimco managing director Bill Gross' latest missive is aptly titled "Money for Nothin' Writing checks for free" in a nod to Dire Straits. In the past, Gross has cited The Beatles and Flavor Flav in pieces.
In his first investment outlook of the year, Gross called out Fed chief Ben Bernanke for his 2002 "helicopter speech," in which he noted that the U.S. government has the ability to print as many U.S. dollars it wants "at essentially no cost."
Gross pointed out that Bernanke never actually defined what "no cost" meant.
No matter how you slice it, Gross, who runs the world's largest bond fund, questioned how any central bank can print trillions and trillions of electronic dollars with out any consequence.
"They just make it up," he wrote. "Supposedly they own a few billion dollars of 'gold certificate' that represent a fairytale claim on Ft. Knox's secret stash, but there's nothing there but trust."
Trust should be something that's earned and not just a foregone conclusion, but that's what appears to have happened, according to Gross. "$54 trillion of credit in the U.S. financial system based upon trusting a central bank with nothing in the vault to back it up. Amazing!," he noted.
Gross also took to Twitter Wednesday to express his dissatisfaction with the fiscal cliff deal.
Gross: Not sure much has changed has it? Washington still dysfunctional, no spending cuts. If anything payroll tax hike will hit GDP by .5%—
(@PIMCO) January 02, 2013
Gross added that unlimited check writing, a la QE ad infinitum, will come at a cost. "The future price tag of printing six trillion dollars' worth of checks comes in the form of inflation," he said, adding that "to date, central banks have been willing to accept that cost -- nay -- have even encouraged it."
Which brings him to his final piece of advice for investors. Stay away from long-term bonds.
"While they are not likely to breathe fire in 2013, the inflationary dragons lurk in the "out" years towards which long-term bond yields are measured," he said. "You should avoid them and confine your maturities and bond durations to short/intermediate targets supported by Fed policies."
Pimco's Total Return Fund (PTTRX) has been placing its Treasury bets in that spot for months.
Treasuries are often considered the safest investment in the world, but they could ultimately be one of the more dangerous places to put a large chunk of your portfolio.
Bond fund manager Bill Gurtin is worried about what he calls Fed-induced complacency that is causing investors around the world to pile into Treasuries. These moves have driven up prices in U.S. government bonds and sent yields near all-time lows.
"We've been in MOREMaureen Farrell - Nov 1, 2012 10:16 AM ET
The Bond King came out swinging against the most recent easing plans out of the Federal Reserve and European Central Banks on Twitter late Monday.
Gross: Central banks are where bad bonds go to die. Sell bad bonds, buy good ones. Investing sometimes can be very simple.— (@PIMCO) September 17, 2012
The comments from Bill Gross, founder of investing firm Pimco, come just days after the Fed unveiled its plan MOREHibah Yousuf - Sep 18, 2012 1:53 PM ET
Global demand for U.S. securities is still strong, with China remaining the largest foreign holder of U.S. debt, according to the Treasury Department's latest report on foreign holdings.
The U.S. government's top international creditor continued to add to its holdings, albeit modestly, according to the July Treasury International Capital report, which measures the flow of funds into and out of U.S. securities, including Treasuries, agency-backed securities, corporate debt and stocks, MORECatherine Tymkiw - Sep 18, 2012 12:44 PM ET
It's too early to tell whether investors can cash in as the U.S. Treasury cashes out of its stake in AIG (AIG).
But both the government and shareholders can claim hearty returns for now. AIG's stock is up more than 40% since January, even after falling 1% Tuesday. And the U.S. government will earn a profit of $15.1 billion when it sells the bulk of its stake in AIG tonight.
StockTwits traders MOREMaureen Farrell - Sep 11, 2012 3:51 PM ET
Investors in the rest of the world continued to buy U.S. investments in June, the Treasury Department said Wednesday.
Foreign investors purchased a total of $16.7 billion worth of U.S. securities, according to the latest Treasury International Capital (TIC) report. That's down sharply from May, when the same class of investors bought a total of $121.3 billion worth of U.S. securities.
TIC data measure the flow of funds into and out of MOREBen Rooney - Aug 15, 2012 11:34 AM ET
The world's largest bond investor took to Twitter Monday to air his gripes about Paul Ryan, the newly chosen Republican vice presidential candidate.
GROSS: Do bond markets take heart from Ryan selection? Not me. He talks lower deficits but really believes in lower taxes — exact opposite.— (@PIMCO) August 13, 2012
The comments from Bill Gross, founder of investing firm Pimco, show the challenges that Ryan may face when trying to MOREHibah Yousuf - Aug 13, 2012 3:58 PM ET
The United States lost its pristine AAA credit rating a year ago Sunday, but you wouldn't know it by looking at the Treasury market.
"The telltale sign was day one: Standard and Poor's downgraded the U.S. credit rating on a Friday night, and Monday morning, U.S. Treasuries exploded," said Paul Montaquila, head of fixed-income trading at the Bank of the West. "Since then, it's been a year of relentless purchasing and MOREHibah Yousuf - Aug 5, 2012 8:20 AM ET
Investors who are on the hunt for yield may want to avert their eyes from long-term Treasuries.
The yield on the 10-year note slid to a record low of 1.44% Monday morning, as ongoing signs of weak global growth kept the flight to safety alive and well. Investors tend to snap up Treasuries during times of uncertainty because they're backed by the U.S. government.
It's not exactly a new story that the MORECatherine Tymkiw - Jul 16, 2012 11:30 AM ET
The world is hungry for U.S. debt.
Foreigners increased their holdings of long-term U.S. debt by $25.6 billion in April, up from a $21.9 billion increase in March, according to the Treasury Department's latest report on foreign holdings of U.S. debt released Friday morning.
The United Kingdom, France and the Caribbean had the biggest appetites for U.S. government-backed debt, according to the Treasury International Capital data (TIC) for April.
China, the U.S. government's MOREMaureen Farrell - Jun 15, 2012 12:06 PM ET
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