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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (189)	7/15/2003 1:21:42 AM
From: ild	Respond to of 110194

Paul McCulley \| July 2003 Promiscuity In The Pursuit Of Virtue pimco.com The Bottom Line I believe the Treasury market is in a “rational” bubble, because the intermediate term global economic outlook is a bi-modal one, rather than a “normal” bell curve. Put more bluntly, Keynesian reflationary policies will work and inflation will go up, or they won’t work and deflation will unfold. A perpetual muddle-along scenario, the easiest one in the world to predict, is also, I think, the least likely. As long as this is the lay of the economic land, Treasuries (swaps) are both too rich to buy and too cheap to sell. Not a pleasant place for an active portfolio manager: If it’s a bubble, playing it on the long side is a bigger fool game, but if it is not a bubble, playing it on the short side is a foolish game. The “truth” will be revealed only in the fullness of time. Until it is, a close-to-index duration stance is the right posture for active fixed income managers, particularly after the vicious sell-off of the last several weeks. In a world of a “rational” bubble, the rational portfolio manager must worry more about being wrong than being right. The name of the game must be to stay in the game, until time is full.