Gross admits he was wrong on bonds

All over the news is an admission by Pimco bond king Bill Gross that he was wrong to be bearish on U.S. Treasury bonds (CNN article link).

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Gross, who manages the world's biggest bond fund, is now admitting that he struck out. ...

Pimco ... slashed its exposure to U.S. government debt to zero in February ...

The 10-year yield stood at a lofty 3.75% in February. Less than two weeks ago, the yield on the 10-year note touched a record low below 2%, and it now stands at 2.17%.

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Even the best of the best make bad calls. It is refreshing to see a straight out admission of that instead of double speak or excuses, or rationalizing about being right just early. No matter how a person parses it, 3.75% to 2.17% is a huge bull move, and anyone that was bearish was wrong, wrong, and more wrong.

Readers know that I write openly about my losers. Most traders tend to learn more from their losses, so journaling about them, trying to dissect what went wrong can often be a useful exercise. For Bill Gross, I point to the massive efforts of the Fed and its allies to keep rates low. $2 trillion in quantitative easing buys a lot of bonds. The Fed still has a sword pointed at bond market bears even though there has not been an official announcement for QE3. I see little chance that the Fed will let interest rates explode to the upside.

As I've written in other posts, the Fed will eventually run out of ammo, because the bond market will stop responding, or take more and more money to manipulate it. That time isn't now, or even close. The lid is still on the pot.

The bond market is so vast and huge, I believe it will take a while to boil over. I may start tilting bearish on bonds on a trading basis in Oct/Nov, but still think the Fed will pull levers to keep rates relatively low, and that the bond market crash is still years out. It will take a lot to kill off a 31 year long bull market, but when it goes it may be something to behold.