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Huge Investment Funds Take Opposing Positions on Debt Gridlock

Written by Gary North on October 10, 2013

Fidelity Investments has sold all of its short-term T-bills and is buying longer-term T-bonds. Pimco, the largest bond fund, is selling its bonds and buying T-bills.

Fidelity thinks there could be a short-term crisis in the federal government. Bill Gross does not think so. He manages Pimco. He thinks the odds are against a default. Fidelity also thinks the government will not default, but it took prudent measures. So far, Fidelity has been right. T-bill rates have risen in the last month from 0.01% to o.05%. It was 0.1% as recently as September 20. It was at 0.02% as recently as October 1.

Fidelity manages $430 billion in money market mutual funds. That is a lot of money.

T-Bond rates have not risen. So, Fidelity locked in higher rates, which is to Fidelity’s advantage.

The heaviest selling was in one-months T-bills. The market was at 0.26% on October 9, the highest since 2008. It was zero on September 19.

Overnight rates in the so-called repo market used by banks to fund lending have gone from 0.04% on October 1 to 0.13% today.

Gross said this: “We’re doing just the opposite . . . probably buying what Fidelity is selling.” He thinks the odds of a U.S. default are a million to one.

The markets for short-term debt are indicating a slight concern regarding a default. But given the very low rates in 90-day T-bills, even at 0.05%, this fear is not great. Fidelity is hedging its portfolio by moving completely out of T-bills, but the firm does not think anything major is looming. It just wanted to avoid any short-term problems. It has.

I do not think a default is likely. Neither do most investors. But they have indicated that the deadlock in Washington is going to last through the month and maybe into November.

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3 thoughts on “Huge Investment Funds Take Opposing Positions on Debt Gridlock

  1. Texas Chris says:

    6 in one hand, half dozen in the other. It's not going to matter, no matter what position you take, because they're all valued in US Dollars.

    The dollar is worthless. Not just worth less, but worthless.

  2. FreeMarketAnarchist says:

    Not worthless quite yet. You can still go into a grocery store and load up your truck paying with dollars. Once you see pictures of pallets of paper dollars rotting in the fields, then you'll know it's worthless.

  3. Wesley Bruce says:

    Continue Reading on onlineathens.com

    This is a dead link and is on some pages that have a conclusion to the passage.

    Is it a glitch?
    It works in the report on the sandstone 3d building you picked up from me, I.E. the gizmag link, but where there is nowhere to go it seems to default to onlineathens.com what ever that is meant to be.