Archive - Dec 29, 2009

As we pointed out two weeks ago, PIMCO has been preparing for 2010 by selling out its legacy "safe" MBS and Treasury holdings, and shifting largely to cash. Furthermore, the recent hirings of corporate and distressed asset managers indicates that the traditionally Treasury heavy asset manager is set to become the world's biggest fixed income hedge fund, focusing on IG, high yield and distressed investments. As PIMCO is a critical manager in numerous government bailout programs, we can only hope that the firms' Newport Beach Chinese Walls are better at keeping secrets than the characters in assorted O.C. legacy "reality" shows. The below presentation by PIMCO's Mark Kiesel indicates why PIMCO will soon be one of the primary actors in future official creditor committees in the upcoming wave of corporate bankruptcies (yes, shockingly assets do have to create cashflows for companies to avoid bankruptcy).

• And the government fails again at curbing excess executive pay at nationalized and bankrupt financial black holes: AIG GC Anastacia Kelly, whose prior experience includes bankrupt failures, WorldCon and Fannie Mae, to get millions after all (WSJ)
• Prepare for a Yemen invasion: The Peace Prize winner is setting the stage for the next war (Bloomberg and WSJ)
• War on Wall Street as Congress sees returning to Glass-Steagall, and not a moment too soon (Bloomberg)
• The Fed's latest gimmick to pretend it cares about withdrawing liquidity: Interest bearing term-deposits (NYFed)
• Prepare for a Keynesian hangover (WSJ)
• Turning to Buffett, Bogle and Buddha for wisdom on how to invest (MarketWatch)
• Robert Reich: Wall Street bailout - the great sideshow for 2009 (LA Times)

The top five shorts of the decade, the new champion and my take on the possible implications, partly supported by Dr. Marc Faber.

Federal Reserve conducting covert Treasury monetization, John Williams warns of U.S. hyperinflation, UN producing bullion coins as world currency, Pakistani government enters political crisis, Lieberman offers to personally hunt down terrorists in Yemen, massive regional war approaches.

Wall Street real estate fund investors have essentially given an implicit, cost free "call option" on the real estate market to the big banks. This cost free call incentivized the banks to do as many big deals as fast they could during the CRE bubble, and allowed them to profit even when the deals went bad (as many of them have and inevitably will due to the bubble prices, leverage, expanding cap rates and a negative fundamental/macro outlook). Most observers will be shocked to see the disparity in the returns between the bank, as the fund manager, and their investors. Well, I present to you, "shock" in the form of a blog post!