Saturday, January 15, 2011

Mini-Me Speaks For His New Masters

Neel Kashkari, the former Treasury official of the Bush administration who infamously ran the TARP program—and was amusingly labeled “Mini-Me” for his uncanny reseamblance to his boss, Hank Paulson—is back in the news, this time for his opinions: A bit of analysis in the Wall Street Journal.

Neel “Mini Me” Kaskari, and his former boss,
former Treasury Secretary Hank “Dr. Evil” Paulson
Kashkari is looking like one of those people who’s always going to be around: After “running” the TARP, Kashkari went to sunny California, to work for PIMCO—he's supposed to be running “a new investment initiative”, but the vibe we’re getting at The Hourly G is that he is busy fulfilling his contractual duties as a Mini Me, this time of Bill Gross and Mohamed El-Erain. (So expect to see Kashkari grow his hair out, an maybe add a moustache).

Anyway: In his WSJ piece, he ticks off the major concerns that he supposedly has (though bets are good that they’re actually Gross’s and El-Erian’s—Mini Me’s are notorious for having no opinion of their own). Those concerns are:

• Rising fiscal-debt-to-GDP ratio.

• Increasing inflation expectations.

• Reduced Treasury bond demand from abroad.

• Rapid dollar depreciation.

• “Dramatic” steepening of the yield curve.

Now, none of these points are remotely foolish or off-target—on the contrary.

But PIMCO’s Gross famously said that, when the Federal government and/or the Federal Reserve act on the market, you’d better get on their side of the trade, or you’re going to be wiped out.

Now, the Wall Street Journal is not some obscure finance blog which can’t make up its mind about its background. So Mini Me Kashkari didn’t write this analysis for the WSJ out of the blue, or all on his lonesome—it seems fairly certain that this was approved by Gross and El-Erian, who tweeted about Mini Me’s analysis on their Twitter feed.

Clearly, this is a message. What is that message? PIMCO no longer thinks the Federal government and/or the Federal Reserve have control of the situation. In other words, this is the signal that PIMCO thinks the Fed and the government are on the losing side of the trade.

Now, why would PIMCO signal their thinking? Nothing nefarious, The Hourly G thinks it’s just ego on the part of the PIMCO bond pimps—they just want to leave the trail and show that they knew that the Fed and the government were losing their grip.

Like the good traders that they are, they are getting on the winning side of the trade—and they want people to know about it.

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