Monday, April 11, 2011

Karl Denninger: Seeing What He Wants to See

Actually, it is not fair to single out Karl.  He's late to the game as people like "Tyler Durden" of ZeroHedge and Max Keiser piled onto this story a day or two ago.

What story?  The story that PIMCO is shorting the U.S. dollar, which is based on the fact that PIMCO has recently taken a relatively small short position against U.S. treasuries.  Here is Karl's take on the story.

The problem with the "story" is that it is fiction.  At the same time that PIMCO has taken its $7 billion short position against treasuries, it has almost $80 billion in cash (i.e., the U.S. dollar), making cash the single largest asset class held by the PIMCO fund in question.  Given the 10:1 ratio between cash and the short position in treasuries, one can only view the latter as a hedge against the former bet being wrong.  And what is that bet?  PIMCO is betting on a collapse in the secondary bond and equity markets that will once again make cash king.  And I think PIMCO is right.

I commented on this story over at Max Keiser's place here and here, ending the discussion in both cases. 

Bottom line: deflation is inevitable (indeed, we're already undergoing deflation, but that fact is being masked through stupid accounting and finance tricks); all that is happening right now is the Fed and other central banks are managing a soft landing for the financial elites at the expense of everybody else.  At heart, the banksters are illusionists who use sleight-of-hand to work their "miracles."  Everything that we are seeing, including central bank policies across the board, is meant to herd people into risky bets to fleece them.