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Jeff Gundlach Warns Massive Asset Managers Like PIMCO And BlackRock Are Greater TBTF Risk Than Citi
In this brief interview with Morningstar, Doubleline's star MBS analyst, and the bane of TCW's existence, Jeff Gundlach, points out the glaringly obvious: i.e., that "if Citigroup was too big to fail, then so much greater is the risk for asset managers at a multiple of that market cap." Obviously the mortgage expert here is contemplating asset manager behemoths such as PIMCO and BlackRock, which have quietly become even more institutionalized within the fabric of the financial markets, than some of the TBTF banks. And without access to the Fed's discount window, liquidity threats to firms like PIMCO are exponentially greater than even for a bankrupt POS like Citigroup. No wonder Gross was offloading European sovereign debt with gusto as of last check. With total assets of over $1 trillion, saying that a failure by PIMCO, and by extension its Fed-unmoderatable counterparty risk, would have huge implications on the US financial system, is so obvious, that it is completely understandable that there is not one single provision in the Senator from Countrywide and the Congressman from Fannie's FinReg proposals on how to tackle this most recent threat to capital markets.
From the Gundlach interview:
Jason Stipp: You had mentioned in a recent interview about the government and the whole notion of the "too big to fail" and you said that that should really be extended to asset managers. I am wondering if you could elaborate a little bit on what you see as a risk of asset managers that may be too big to fail and can you confirm if you were talking about PIMCO with that comment?
Jeffrey Gundlach: Well, I'm not talking about any one firm in particular, I am just saying that any investment management firm that is controlling many hundreds of billions or even trillions of dollars and is using a lot of counter party risk for synthetic transactions is introducing a lot of systemic risk into the system. Remember when we had all those problems in September '08 and the government had to come to the rescue of Citibank, Citibank has a market cap of something like $300 billion, and that was enough capital at risk to be deemed too big to fail.
If there is an asset manager with $600 billion or $1.2 trillion or $3 trillion of investors' money and a lot of that is with counterparty risk and synthetic transactions because assets managers of that size are almost required to operate in these shadow markets, then there is a greater risk to investor capital in those asset managers' counterparty risk and synthetic transactions than Citigroup represented, so if Citigroup was too big to fail, then so much greater is the risk for asset managers at a multiple of that market cap.
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Government of the connected, by the connected, and for the connected, shall not perish from this earth.
Freedom = non-governmentally-controlled assets.
Can you guess what those might be?
The air you breathe... That's about it.
Um. You haven't heard about Cap & Trade?
Caskets?
Every day I wait for something new to go horribly wrong. Then I remember my tomato garden and how much I really enjoy a good tomato. I have been drying them for a while now with a dehydrator, that way I will have tomatoes to eat when the shit hits the fan.
Me too!
This guy been playing with his sex toys too much. Nothing more than a ploy to scare prospects away from competition (although with or without oaktrees help he's a joke). It's really a stupid statement and not similar to citi at all.
Perhaps you're too young to remember Long Term Capitol Management, a hedge fun if memory serves. Had to be bailed out to save the world. Just one stinking hedge fund. So guess who's playing with their sex toys too long.
LTCM, a hedge fund, was levered 28-1. Leverage can make a good investment go bad and LTCM might have survived with a more prudent use of leverage.
Actual leverage at PIMCO and Black Rock is significantly less. However, I'm not discounting the potential risks from derivative exposure, synthetic structures, other off-balance sheet leverage, etc. at these asset managers which is a whole 'nother matter.
Wonderfuck has you moron!!
where's the clip??
A slight oversight, to be sure. This will get you through in the meantime: http://www.youtube.com/watch?v=HqGsT6VM8Vg
Well, this is about Bernanke. This is about Bernanke. He has to be on that call. Forget the investors. The investors are gonna do- If Bernanke listens- Bernanke needs to open the discount window. That's how bad things are out there. Bernanke needs to focus on this. Alan Greenspan told everyone to take a teaser rate, then raised the rate 17 times? And Bernanke is being an academic. It is no time to be an academic. It is time to get on the Bear Stearns call. Listen. Open the darn Fed window. He has NO IDEA how bad it is out there. He has NO IDEA! He has NO IDEA! I have talked to the heads of almost every single one of these firms in the last 72 hours and he has NO IDEA what it’s like out there! NONE! And Bill Poole has NO IDEA what it’s like out there. My people have been in this game for 25 years, and they are losing their jobs and these firms are gonna go out of business and HE’S NUTS! THEY’RE NUTS! THEY KNOW NOTHING!
I have not seen it like this since I went 5-bid for half a million shares of Citigroup and I got hit in 1990. This is a different kind of market. And the Fed is ASLEEP! Well, Bill Poole is a shame. He’s SHAMEFUL! He ought to go and read the Accredited Home document, at least I read the darn thing.
You can’t get a darn loan if you’re rich like me.
I now that it is a holiday weekend but is it possible that you can come up with a more original post in three days. And you are quoting f%#$#%^^ing Cramer yet in the process. I have a son who is ADHD. But can we move on now and get you to focus intensely on another person's spoken words (as your own are obviously inadequate) for the coming week. It is Monday after all. You no longer need to overdemonstrate the point that your millionaire wealth was inherited and has somehow been preserved despite you.
How many times you going to paste in the same comment? Lame.
Bill Gross is 10 light years ahead of the idiots in the FED and Congress. He is like the Warren Buffet of bonds. I think I will stick with Bill instead of Geithner and Bernanke. He might not be as perfect as GS(LOL), but he sure knows when to hold em' and when to fold em'.
+1 someday the guy will head the fed or treasury, caue the fed is dead
By comparing Bill Gross as the WB of Bonds you mean crooked as fuck talking his own book?
Tyler, the Senators/Congressfucks only have the vision to attempt partial regulation to avert the last crisis (you know the one from 2 years ago....that we are currently V recovering from).
Anticipating future crisis and attempting to head them off before the come to pass.......hahahaha good one.
Congress will never do anything to abate crises. Problem-Reaction-Solution. Steal the rights, steal the money.
You Americans thought you could have a system based on classical liberalism/rule of law, and fuck up the scam? Nonsense. Your businesses and government have been infiltrated for a century, and the end is near.
Yes
Beyond doubt, of course.
So long Great Moderation
Hello Great Inflammation
Welcome to the long hot Summer of Irritation.
Where is the clip.
I think this is it CB.
http://www.morningstar.com/Cover/videoCenter.aspx?id=338987
Funny that Bill Gross is now saying that the opinions of credit rating agencies are worthless.
"Their warnings were more than tardy when it came to the Enrons and the Worldcoms of ten years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbors. The result has been the foisting of AAA ratings on an unsuspecting (and ignorant) investment public who bought the rating service Kool-Aid that housing prices could never really go down or that countries don’t go bankrupt." - May 2010 investor outlook Pimco.com
Grab your popcorn and watch the global elite eat away at each other!
CFR Meeting: Zbigniew Brzezinski Fears The Global Awakening
http://www.youtube.com/watch?v=oDBlABD01U0
The opinion of Bill Gross is worthless as well!
Gundlach is either an idiot or he found some lame way to bash the competition. The amount of capital comparison is irrelevant. The only measure of TBTF relevance is the size of the counterparty book and the uninsured deposit book.
Shitigroup banks all sorts of politically connected foreign accounts. Its foreign deposits are a big part of the Asian and petro dollar recycling system. This system has massive diplomatic and military implications. They are the bagman for the backroom deals that makeup the unholy alliances behind global financial flows.
He's been talking shit about WAMCO and PIMCO for years. He predicted they would both fail, at least two years ago.
What is his take on TBTF PBGC. Oh wait, that's being bailed even as we type. (Sen. Casey (D) Pa. $180bil)
I'm also worth $1 trillion because I have accounting models which tell me I have assets worth $1 trillion. Therefore I'm too big to fail and you all have to bail me out too.
Soon, that "systemic risk" phrase will be able to be used to justify any and every crazy bailout scheme.
The US can save its "system," but it will destroy its economy in the process. That sounds like an easy choice for the blind men in charge.
Soon was yesterday. The Federal Reserve is doing this every day now behind closed doors.
Vaguely reminiscent of the "We had to destroy the village to save it" line, eh?
Either bail-out or snuff-out. Sorta' like Hank Greenberg got crosswise with Client No. 9 and his sub-managers. Got ejected and AIG was off to the races. Imagine if O and gang get excited against a company that is not giving enough money away.
- Ned
I didn't know Pimco Total Return Bond Fund (Sym: PTTDX) used synthetics or derivatives to any large extent. They certainly don't disclose their use (other than on very small scale) and if they do use them they are violating to "The Investment Company Act of 1940" by failing to disclose their use. I would venture to guess that the use of derivatives at all is outside the parameters of the "Act."
But the real catch is this. If Pimco were to shift its focus and begin to sell those positions because of possible losses they could create a "storming of the Bastille" moment and crash the bond market. That would be even without the use of derivatives or synthetic CDOs.
So what we have here is another example of TBTF where they may be violating the law or simply so huge that a 10% swing in their holdings could crash the bond market. The trouble is that now that these synthetics are in widespread use (if they are indeed used by mutual fund companies) it is probably too late to outlaw them.
What a fucking mess.
And there lies the rock solid argument against leverage on crack and synthetic CDO's and especially the entire bailout circle jerk because inevitably if you continue to perpetuate a broken system and reward it with more risk and control of market share you reach a point where the losses are so great across the board a bailout is mathematically impossible. When that happens we get dive bombed by black swans.
PIMCO is the least of our problems...
Sounds like a very good reason to eliminate these systemically risky entities and nationalize the entire thing into USTs, don't it? I can see the headlines already...
I observed a few years ago that there were trillions sitting in PIMPCO, American, Invesco, Vanguard, Fidelity. All these have at least $500B under management so far as I recall and the larger ones around a trillion. Would go a REAL long way to staving off debt default if the government were to feel the itch like Argentina did.
Wouldn't even have to seize it, just use the taxation power. 'Course, it'd kill velocity dead but that's just one stair in the case
Teresa Ghilarducci at New School has testified in Congress about how good that would be. Seize retirement plans as they are too risky for the great unwashed and "guarantee" 3%.
- Ned
I was wondering what the opposite of TBTF is?
Because I have never experienced a no risk quarentee by the government, I have a hard time relating.
Unfortunately, I guess I am in the opposite to TBTF catagory, or perhaps I should call it,
To Small to Matter, TSTM. A place where insolvency is still a real risk, AKA Bank Failure Friday.
Mark Beck
How about WTFAY (Who The Fuck Are You)
or BTWS (Back To Work, Slave)
or SUOYD (Shut Up Or You're Dead)
It would be best to find one that can be pronounced phonetically since accronyms derive more power that way ie., FED, NORTHCOM, POTUS
The problem seems to be all those pesky financial intermediaries. Now is the time for the mother of all disintermediations ... you, little people ... you must turn over all of your wealth to the US Treasury, which is certainly safe as it is backed by the full faith & credit of the You-nited States, where it can be held safely on your behalf by a benevolent government that knows better than you what is good for you.
Total, BS from someone who is either ignorant, or is trying some fearmongering as a way to get raise AUM. We've all tried the "PIMCO is too big" tactic before, good luck with that. As far as his ignorant comment: Citi is one legal entity, PIMCO is thousands upon thousands of them. Each pension plan is its own separate counterparty with its own separate ISDA, and hense its own separate counterparty risk. The only reason LTCM went down is b/c they were forced out of their trade due to leverage and were cut off from an ability to repo overnight (lost liquidity). The pensions of this great nation are not levered and thus could hold on like LTCM wished it could (remember those very positions did very well in 1999!). The comment is foolish and uniformed.
The ugly mess at TCW over chief investment officer Jeff Gundlach’s recent departure, has prompted a number of headlines lately. I was surprised to learn that Gundlach had a number of dirty secrets, and not just the illicit material found in his office. But I’m even more surprised that both reporters and people in the industry have missed the real story, which has been in open view for the last year.
In the classic Wall Street tradition of failing upwards, Gundlach maintained a stellar reputation despite his role as a leading creator of toxic CDOs that did considerable harm to investors and to AIG, and therefore the US taxpayer. Somehow, through the magic of CDOs, many of the creators of these toxic bonds have been able disclaim any responsibility for their performance and still command paychecks that would make the average Goldman Sachs employee blush. TCW touted their superior experience, diligence and expertise in mortgage assets which turned out to be great for their own funds but not for the CDOs. Instead of getting returns comparable to TCW’s managed funds, most of the investors in TCW’s CDO’s got blown up.
TCW, a subsidiary of Societe Generale, is one of the largest investors in mortgage backed securities in the world and had, prior to the start of this mess in December, over $110 billion of assets under management. TCW was also the world’s biggest issuer of collateralized debt obligations, especially those backed by mortgage backed securities. As of 2007, TCW had over $64 billion of CDOs outstanding. TCW issued CDOs under the deal names of Davis Square, Everest, South Coast Funding and Westways Funding.
In the year following a massive meltdown triggered by ABS CDOs, many of which were issued by TCW, the chief investment officer for the firm was paid $40 million. Over the past five years he was paid over $135 million. While he delivered excellent results for investors in TCW managed funds, for which he deserves praise, he delivered toxic bonds and destruction to investors in his firm’s CDOs. For which he received no meaningful loss of reputation or personal earnings. In fact, many of TCW’s investors, as well as it’s employees, have followed Gundlach to his new firm where he will presumably be in a position to earn even more money.
In addition, despite TCW’s terrible CDO track record, the investment firm was one a select few that was picked to participate in the government’s public-private partnership plan for investing in distressed assets known as the PPIP. It seems strange that the Obama administration rewarded TCW with this designation even though they had helped create billions of dollars worth of distressed deals themselves. Since Gundlach’s departure, TCW has announced that it will wind down its PPIP fund.
Tom Adams: “TCW and Gundlach – Missing the Real Dirty Laundry”By Thomas Adams, at Paykin Krieg and Adams, LLP, and a former managing director at Ambac and FGIC.
http://www.nakedcapitalism.com/2010/01/tom-adams-tcw-and-gundlach-%E2%80%93-missing-the-real-dirty-laundry.html
How Lucido Helped AIG Lose Big on Goldman Sachs CDOs
Lucido left TCW in December to become executive vice president of DoubleLine Capital LP, a Los Angeles investment firm founded by his former boss, Jeffrey Gundlach.
As early as August 2006, Gundlach was preparing to act on his prediction that U.S. home prices would continue their slide. He announced that TCW was putting together a $1.5 billion fund to invest in bad mortgages.
More than $16 billion of CDOs managed by TCW have defaulted, been liquidated or stopped paying some investors, according to RBS Securities Inc.
TCW now finds itself defending Gundlach’s team at the same time it’s suing him for having “no understanding or respect for the obligations of a fiduciary,” according to a complaint filed Jan. 7 in Los Angeles Superior Court.
http://www.bloomberg.com/apps/news?pid=20601109&sid=arFjbsBO7BS8&pos=10
When it comes to too-big-to-fail Gundlach knows that of which he speaks, contributing diligently and profiting handsomely from the failures, now on his own scooping up the toxic carnage he helped create, making out coming and going similar to the insiders during and after the S&L debacle. See also: shady characters, made in the shade.
What do we have here, a bunch of sour grapes? I'd pick Jeff over Bill on my dream team any day of the week. i.e.: Treasury Secretary, FED Chairman, ect. Karl Denninger too. Totally Class Acts !!!