Bill Gross, co-Chief, PIMCO, has just released his lat­est instal­ment of his newslet­ter, titled, "Let's Get Fisical."

In it, Gross dis­cusses the theme, that 2010 will be a year of "exit strate­gies," of break­ing free of gov­ern­ment assis­tance. As usual, Gross' out­look is cap­ti­vat­ing, and like oth­ers requires some inter­pre­ta­tion as well as look-through.

Here is an excerpt:

"If 2008 was the year of finan­cial cri­sis and 2009 the year of heal­ing via mon­e­tary and fis­cal stim­u­lus pack­ages, then 2010 appears likely to be the year of "exit strate­gies," dur­ing which investors should con­sider eco­nomic fun­da­men­tals and asset mar­kets that will soon be priced in a world less dom­i­nated by the gov­ern­ment sec­tor. If, in 2009, PIMCO rec­om­mended shak­ing hands with the gov­ern­ment, we now pon­der "which" gov­ern­ment, and cau­tion that the days of care­free check writ­ing lead­ing to debt issuance with­out limit or inter­est rate con­se­quences may be num­bered for all countries."

and,

Addi­tion­ally, if exit strate­gies pro­ceed as planned, all U.S. and U.K. asset mar­kets may suf­fer from the absence of the near $2 tril­lion of gov­ern­ment checks writ­ten in 2009. It seems no coin­ci­dence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into finan­cial mar­kets. If so, then most “carry” trades in credit, dura­tion, and cur­rency space may be at risk in the first half of 2010 as the mar­kets read­just to the absence of their “sugar daddy.” There’s no tellin’ where the money went? Not exactly, but it’s left a sus­pi­cious trail. Mar­ket returns may not be “so fine” in 2010.

I find it unusual that the dis­cus­sion of carry trades is sel­dom dis­cussed in depth, espe­cially when it is such an inte­gral, and func­tional, mov­ing part of both the credit and equity mar­kets. There has been a notice­able amount of press on the dol­lar carry trade end­ing, and the threat that poses, but very lit­tle on the sub­se­quent pres­ence and resump­tion in the yen carry trade, our Japan­ese "sugar-daddy." As Hosein Askari recently asked, "Whose pay­ing for the beer?"

Gross doesn't men­tion it. There has been a rever­sal of the inverse rela­tion­ship between the U.S. dol­lar and equity mar­kets, emerg­ing mar­kets, com­modi­ties,  and the Cana­dian dol­lar, et al., since the U.S. dol­lar recov­ered off its late Novem­ber lows. Where is the mys­te­ri­ous sup­port com­ing from? Per­haps its too early to tell, OR, those who do know about it, are exploit­ing the oppor­tu­nity, and keep­ing their lips tightly sealed.

Read the whole newslet­ter here.

Read more from the author/contributor here.

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