1. Given the quantitative easing measures put into place by the Federal Reserve, what do you believe will be the impact on the value of the US dollar and how will this increase or decrease a U.S. company’s ability to sell their goods or services abroad?
Please use this week’s articles to answer the above question. Give a specific industry example for how this impacts their business today. Please respond to the initial post (4pts) and then to 3 of your classmates posts (4pts. each). You will receive an additional 4 points if your posts are on-time and are grammatically error free.
Pimco’s Gross Eliminates Government Debt
From Total Return Fund
March 9, 2011
(Bloomberg News) Bill Gross, who runs the world’s biggest bond fund at Pacific Investment
Management Co., eliminated government-related debt from his flagship fund.
Pimco’s $237 billion Total Return Fund last held zero government-related debt in January 2009.
Gross had cut the holdings to 12% of assets in January, according to the Newport Beach, Calif.-
based company’s website. The fund’s net cash-and-equivalent position surged from 5% to 23%,
the highest since May 2008.
Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal
Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly
investment outlook posted on Pimco’s website on March 2. Gross mentioned that Pimco may be
a buyer of Treasuries if yields rise to attractive levels.
Treasury yields are about 150 basis points too low when viewed on a historical context and when
compared with expected nominal gross domestic product growth of 5%, he wrote in the
commentary. The Fed is scheduled to complete purchases of $600 billion of Treasuries in June.
Gross in his February commentary urged investors to reduce holdings of Treasuries and U.K.
gilts and buy higher-returning securities such as debt from emerging-market nations. “Old-
fashioned gilts and Treasury bonds may need to be ‘exorcised’ from model portfolios and
replaced with more attractive alternatives both from a risk and a reward standpoint,” Gross
Gross last month increased holdings of emerging-market debt to 10%, the highest since October,
from 9% in January. He cut holdings of mortgage securities to 34% from 42% in January.
The Zero Hedge website first reported the change in assets today. Pimco doesn’t comment on
changes in holdings.
Treasuries returned 5.9% in 2010, according to Bank of America Merrill Lynch Indexes. The
securities lost 0.6% so far this year.
Ten-year Treasury yields have risen for each of the past six months, according to data compiled
by Bloomberg, the longest run since June 2006, as the economy showed signs of improvement
and prices of commodities climbed. The 10-year yield fell six basis points to 3.48% today.
Gross kept the holdings of non-U.S. developed debt at 5% in February.
Gross’ fund has returned 7.23% in the past year, beating 85% of its peers, according to data
compiled by Bloomberg. It gained 1.39% over the past month.
As the Fed maintains its target rate at a record low range of zero to 0.25% and has made an
increase in inflation a cornerstone of its monetary policy, Gross noted that inflation may be a
bigger factor than many suggest.
Gains in so-called headline inflation matter more for the U.S. economy than Fed Chairman Ben
S. Bernanke suggests and rising oil prices may cut U.S. gross domestic product by a quarter to
half a percent point, Gross said March 4 in a radio interview on “Bloomberg Surveillance” with
“Bernanke tends to think this doesn’t matter–at least in terms of headline versus the core–we
do,” Gross said.
Pimco’s U.S. government-related debt category can include conventional and inflation-linked
Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt
backed by the Federal Deposit Insurance Corp., according to the company’s website. The fund
can have a so-called negative position by using derivatives, futures or by shorting.
Derivatives are financial obligations whose value is derived from an underlying asset. Futures
are agreements to buy or sell assets at a later specific price and date. Shorting is borrowing and
selling an asset in anticipation of making a profit by buying it back after its price has fallen.
Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.24 trillion of assets as of