Shorting the United States

by Todd Shriber

PIMCO’s Bill Gross, founder and co-chief investment officer of the prestigious bond house, has a well-documented disdain of U.S. Treasuries, a posture highlighted by his decision to slash the Total Return Fund’s exposure to debt issued by Uncle Sam to zero last month, according to CNN.

Dumping Treasuries is one thing, but shorting them is another endeavor altogether. Yet, that appears to be exactly what Gross is doing. The Total Return Fund took what Zero Hedge calls an “active” short position in Treasuries in March. The particulars of that short position are as follows: -3% (or $7.1 billion) on a market value basis and a -18% on a duration-weighted exposure basis, Zero Hedge reports.

PIMCO being short Treasuries is significant not only because Total Return is the world’s largest bond fund, but also because the firm doesn’t frequently short U.S. government-issued debt. The last time the firm shorted Treasuries was when the financial world was flirting with apocalypse in 2008, Zero Hedge notes.

Then again, it may not be all that surprising that Gross has ratcheted up his bearish view of Treasuries. One needs only to look at his most recent monthly missive titled “Skunked” posted on PIMCO’s website:

“…the true but unrecorded debt of the U.S. Treasury is not $9.1 trillion or even $11-12 trillion when Agency and Student Loan liabilities are thrown in, but $65 trillion more! This country appears to have an off-balance-sheet, unrecorded debt burden of close to 500% of GDP! We are out-Greeking the Greeks, dear reader.”

Gross said that “…if the USA were a corporation, then it would probably have a negative net worth of $35-40 trillion.” Not surprisingly, that means Uncle Sam would have a hard time locating creditors. Assuming Gross is right, inverse bond exchange-traded funds may have just become an even more compelling idea.

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