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The Last Vigilante Part II

Contributed by mm | March 4, 2004 4:56 PM PST

Bill Gross from Pimco put together the March installment of his monthly Investment Outlook, Takin' Care of Business (The Last Vigilante Part II).

As I reported last month, the first part of the Last Viligante argued we are in the midst of a dangerous finance-based economy that will finally slow down due to lack of additional low cost money.

In Part II, Bill Gross listed the strategies Pimco will employ to stay ahead of competition:

1) Reduce durations in reflating countries (US, Japan) and increase duration in relatively vigilant ones (Euroland)

2) Make some bets against reflating and structually dificient country currencies (US)

3) Own inflation protection in reflating countries (US)

4) Own securities expected to benefit from an eventual unwind of unsustainable structures (US budget/current account deficit - which ultimately must be addresses via higher tax rates) -- US Municipals

5) Own the front-end of reflating country curves -- both for inflation protection and to participate in the rolldown/carry offered by the reflating instrument of choice -- low real short rates

6) Void risk holdings (corporates,emerging?) at spreads where Treasury futures compensate for giveup in carry -- the free put

7) Maintain overall durations relatively close to benchmark and monitor success failure of policies very closely.

The strategies were presented in an email from Bill to Pimco's Investment Committee following last month's Investment Outlook.

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