Certainly not PIMCO. PIMCO, the world's largest bond fund became bearish on the prospects of the United States and going to the extent of selling all of its U.S. government-related debt holdings. Bill Gross' $236.9 billion PIMCO Total Return fund sold of its entire holding in the US treasuries as they were clearly bearish on the burgeoning deficit of the US and its inflationary impact.
The U.S. budget gap estimated at around US$1.65 trillion for 2011 along with clear signals of emerging inflation have made them very jittery. How the US government fights inflation going forward, will be interesting.
While I feel that Fed should first look at the option of exiting from QE at the earliest before they think of raising the interest rates – bottomline is, there is no escaping the hike in interest rates. It can only be delayed. And, with the debt levels soaring, rising interest rates will be debilitating for the prospects of the US economy. Unlike Europe, the US does not seem to believe in austerity measures. And with the country building up on debts when the interest rates were at its lowest, It is only a matter of time that the situation will deteriorate as the interest rates bottom out and start moving up. This year, the US debt to GDP ratio is definitely going to cross 100%. With the yield expectations rising, the US is in for a real tough time. The recent rebound in growth numbers seems to be the last hurrah for an economy entering into a troubled phase.
Any why not? When two thirds of the economy believes in spending by running up debts as does the government, the growth can only hide the soft underbelly till it reaches the tipping point. Turbulent weather ahead guys.