Latest Pimco rumination worth a read
I think Gross is spot on. Despite the evident housing bust ... despite worsening economic news ... and despite the deepest yield curve inversion we've seen since just before the 2001 recession, risk spreads have continued to contract. At the same time, stocks have gone up virtually every day and the VIX, a measure of investor complacency, has tanked.
This simply doesn't make sense. One or more of these markets has to be "wrong." Either we're going to have a hard landing (meaning the Treasury market is "right," we're going into a recession, and risky bonds and stocks are "wrong"). Or we're going to find an economic bottom very soon and see much better growth and credit conditions in 2007 (meaning Treasuries are "wrong" and risky bonds and stocks are "right").
Personally, I think this economy is in more trouble than people realize and that credit spreads are way, way too tight. It's nice to have Gross, more or less, on my side!