PIMCO Bonds - The Last Vigilante

This is a very important and informative article from the perspective of a bond trader. Bill has a keen insight into the finer workings of the U.S. economy. Especially check out the historical graph on total credit market debt. The comparison between `29 and today is ominous. As we march toward the edge of globalisation's end game, we need all the serious information possible to assess our position. Then, can we even know?

PIMCO Bonds - Vigilante
By Bill Gross

You don’t hear much about the bond market vigilantes anymore. They sort of rode off into the sunset a few years back, either having forgotten their role or perhaps having grown accustomed to their impotence in an era where deflation instead of inflation was public enemy number one. Their glory days were probably a little overrated anyway. Vigilantes are essentially lenders and decades ago when they first gained their reputation there were no inflation protected TIPS or real return commodity funds for a bond investor to send a message with. It was either bonds or cash, and the price of cash was set by the Lone Ranger at the Fed who was heading up the posse. All the rest of us sort of rode along, whoopin’ and a hollerin’, shootin’ our guns in the air like we were gonna lasso and hogtie those inflationary varmints. But we were kind of acting. Paul Volcker was the man, the Vigilante, and later I suppose it was Alan Greenspan, although to me he now seems more like Barney Fife than the Lone Ranger. I write this in half jest if only to introduce the notion that Volcker’s Wild West was a lot different than that of Greenspan’s today. While both marshals were entrusted with the dual responsibility of controlling inflation and maintaining a sound economy, Greenspan’s economy is a completely different one than the one Volcker rode his white horse into in 1979 and out of in 1987. Greenspan’s economy is a globalized economy, filled with negative vibrations revolving around substitution of cheap Asian and Latin American labor for workers here at home. It is an economy full of technological wonders such as the Net, cell phones, high-speed data transmission, and the like. We may not be able to go to the moon anymore, but things down here on mother Earth are certainly movin’ and shakin’. These changes have completely altered the perspective of our High Sheriff and Chief Vigilante. Now there are legitimate questions as to the natural rate of domestic unemployment in a globalized world, the sustainable level of productivity in a technology tinted economy and the resultant effects they have on inflation and economic growth – the Fed’s two primary responsibilities. It is not an easy assignment, this job of Chief Vigilante in the year of 2004. ...Continued
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