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PIMCO Dumps $80 Billion of Fed-Sponsored Agencies On Taxpayer's Lap; Makes Over $1 Billion
As everyone else has been cheering the revival of the housing bubble, one person has been busy offloading a significant portion of his exposure to housing: Bill Gross. And the direct sponsor of billions of dollars hitting Mr. Gross' Wells Fargo banking account, why, the US taxpayer of course, courtesy of the Fed's printing press which continues keeping prices artificially high. With the Fed en route to purchase nearly one and a half trillion in Agency and MBS paper (for now), it has found eager sellers in the face of PIMCO. MarketWatch reports that PIMCO sold $30 billion in agency paper in September alone, and has sold over $80 billion year to date.
Total Return Fund's holdings of mortgage-related securities fell from
38% of the portfolio on Aug. 31 to 22% on Sept. 30, the latest date for
which figures are available. On July 31, 47% of the fund was in
mortgages -- the fund's largest category holding at that time.
The fund's assets under management on July 31, Aug. 31 and Sept. 30
were $169 billion, $177.5 billion and $185.7 billion, respectively.
The last time Total Return Fund had less allocated to mortgages was
Feb. 28, 2005, when the level was 19%. The fund's assets under
management at that time were $75.8 billion.
PIMCO is not shy in disclosing it is more than happy to take US taxpayers for the proverbial ride:
"Pimco's significant overweight to high-quality, agency mortgage-backed
securities has recently been strongly positive for returns. With MBS valuations having richened substantially, and the Federal
Reserve's mortgage-purchase program slated to end in March of next
year, Pimco plans on moving to an underweight in an effort to benefit
from an expected cheapening of agency MBS."
PIMCO's Total Return Fund had about $120 billion in MBS, or 86% of total holdings, on February 28. The number has declined to a meager $40 billion at September 30. A Price/Yield for an indicative Fannie 30 Year 5% MBS, indicates that on average the price for comparable securities has risen by about 200 bps, ignoring the current yield. Therefore, PIMCO has likely made well over $1 billion in profit on the $80 billion in mortgage-related securities it has sold off. The invoice to the US taxpayer is already in the mail and is expected to be paid for at some point in the next decade when demand for US securities drops off a cliff once the Fed stops monetizing.
As to whether the market is aware of Gross' stealthy offloading of MBS, and how it may react to this action:
[Deutsche Bank analyst William] Chepolis said he believed that Wall Street banks were likely big buyers
of Pimco's sell-off. "Banks like the zero credit rating. ... No one
knew Pimco was selling until they announced it," which suggests that it
had lined up deals with a few banks.Finally, Chepolis pointed out that he's in agreement with Pimco's new
approach. "I would be in favor in scaling back a little -- maybe not
everything, but certainly taking profit off the table."
As always, PIMCO, which itself is a key participant of virtually every Fed and Treasury program as an agent, manages to eek out a decent living, while stuffing Uncle Sam with the worthless refuse, whose true worth will only become evident once (if ever) the printing presses are shut.
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oh shit...
C'mon, the fed told bond fund managers at the end of last year that they would be out there buying mortgage backs in order to get mortgage rates down. You don't need to be a genius to buy mortgage backs prior to the move. Now the fed is almost done buying mortgages, I believe they said March of next year, and the smart fund managers are getting out before "she blows".
Is it genius? No, is it old news? yes....
I guess I expect better from this board.
The U.S. economy is doomed! Just a matter of time before the panic sets in. Oh nooooooooooooooooooooo
Question for Zerohedge readers...
Why were PIMCO and Goldman cut from the MBS program back in August?
http://www.bloomberg.com/apps/news?pid=20601103&sid=ajtmJVk9OCxw
No decent explanation was given by the FED, Goldman, or PIMCO to explain it.
TD - There is a story here, I bet...
I don't think either of them were ever into this - less than 8 mill fee for a trillion dollar accounting fiasco? These things don't have bar codes.
I asked a Pimco senior guy about the decision regarding PPIP when the withdrawal happened. He said Pimco withdrew from it voluntarily, citing too many complications with the program.
I have signifigant holdings there, so I may have been given sugar-coated reasoning....but that's the story.
rings true
It doesn't ring true that PIMCO would extract itself from regular contact and engagement with the FED because of "complications" with a program that was already up and running for several months...
Maybe it's true... but then again, Goldman also left at the same time - is PIMCO saying that at the same time that they decided it was "too complicated" for them, Goldman had the same thought? The coordination seems to indicate that the call came from the FED (or somewhere external).
I am not sure. However, I believe the program is probably viewed as a flea market approach to unloading the worst.....and I suspect the VERY worst of toxic assets. The banksters will negotiate the less worse at more favorable terms, and some of it has been negotiated privately already.
All in all, I suspect it was about finding buyers for broken china. And the return for involvement just sucked, as previously noted.
Also, to be clear, I wasn't referring to the PPIP program, but instead the $1.25 trillion MBS program.
Apparently, PIMCO was having trouble raising assets for the program.
Both Goldman and PIMCO - at the same time?
Hey, at least Gross has been out saying buy the 10 year for a bit and not pushing people into speculation. Say all you want about BG, but when it comes down to it, he knows when to piss or when to get off the pot.
I agree. Like him or not, you have to respect the guy. He calls it like he sees it without bullshit oratory.
I think Gross has a shitty job - all that mumbo jumbo talk and all those meetings and interviews,
Sure he does Yankee...
Yeah, what is it that James Carville said?
"I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter… but now I want to come back as the bond market. You can intimidate everybody."
Bill Gross is the bond market.
This really should be no surprise to anyone who has been halfway plaugged into the credit markets. Simply put, for every willing buyer there is likely a willing seller-- at a price.
It's not only PIMPCO, but every manager and holder of crappy mbs and agency paper that have been willing to sell to the 'stupidest" investor out there-- the U.S. Federal Reserve. I place the "stupidest" term in quotes, becuase we know they're not "stupid"-- they know what they're buying is purely crap. Only these buyers are exchanging this crappy agency stuff for Treasuries and not losing a dime at all in the transaction. The Fed knows that any eventual losses will be borne by the taxpayer-- but saving the finanical system (and its bonholders) is much more important.
Mind you, these buyers are also Foreign govenements, as well as foreign central banks. You think the Chinese have been selling Agencies and MBS in favor of Treasuries/commodities.anti-dollar currencies. You bet your @$$ they are-- by the boatload.
As for the banks, I cannot imagine they are buying this crap knowing the underlying value of their own collateral and the payment histories of their own mortgage holders. Besides, most banks are more than happy taking zero interest Fed credit and buying Treasury debt yielding 3.5%. Beats buying buying debt in a non-guaranteed bankrupt entity-- or issuing a loan out to the J6P.
PIMPCO can certainly be accused of front-running in favor of their "newfound" instrument preferences. But they are far, far from alone from being a sole seller from such as willing buyer.
thanks for the great explanation assetman.
Excellent Assetman.
The trillion dollar question here is whether munis are going to continue to follow agency MBS down the drain. Thoughts?
I'm thinking muni issuance will be heavy next year. Higher tax rates won't do much to enhance revenue.
Regardless of stimulus 2.0 passage/no passage, a state default may happen. That would be unprecedented. Munis with yield like junk bonds?
Not much to love right now even with a basis package.
What do you think?
my biggest fear is that Barney will resurrect the US government backed munis nonsense. that will truly be the end of the usa.
i can see all these local and state politicians issuing shitloads of debt, defaulting, and directing the bondholders to the US treasury for a check.
they will just love this in NY.
jm....as to a state default, i would only add "states". it's gonna be ugly for some of these states and localities.
I was just a lil unnerved that on the 7th and 8th lotsa munis followed agency MBS down in a very similar fashion. Not sure what exactly to make of it, but I'd reckon there's a lot more funked up municipalities than banks.
Avoid painting munis with a broad brush. Know the culture of the communities behind your credits. There are plenty of places in this country with conservative ideals where default is a moral issue. Stick with essential purpose projects, no stadiums or museums or juvenile jails... Don't trust the rating firms or bond insurers. Read the OS and understand the source of payment. Make sure the viability of the funding stream can be stress tested to your world view. If you become an old school bond guy, you will be OK.
assetman, wondering if u wouldn't mind taking a thought experiment:
let's assume for argument's sake that the FED/Treas are working in concert to buy up as much MBS as they can in order to untangle this mess (with the assumption that they 'think' they are capable of untangling this mess).
how much do you think they need to own before they honestly can make heads or tails out any of this?
how many mortgages do you think can be extracted so that they will possess the legal document?
(not sure if i'm being clear here, please let me know if i'm asking nonsense & i'll try to clarify, but methinks it's important to try to understand the endgame from the Fed/Treas POV...endgame meaning 10+ years down the road)
You ask a really damn challenging question, tip, becuase I don't really think the "how much" equation plays as much into this as to "how long" they can get away with it.
I think the endgame or the Fed/Treasury is to avoid deflation at all costs. Period. The most significant source of deflation going into this is housing prices. Simply put, the strategy is to reflate the hell out of everything-- until a constraint rears its ugly head. They seem to be acceeding to the "unintended" consequences of creating other asset/price bubbles and letting that sort itself out.
The constraints of rapid dollar devlaution globally and hyperinflation internally are ultimately the answers to "how much"-- those are the major constraints. The Fed will continue to purchase bad MBS and agency debt until the dollar nears collapse, or inflationary pressures begin to ramp. If are no signs of either appearing on the horizon, and we still have mounting pressures, say, in the commercial market-- we will see QE 2.0 in 2010.
Simply put, the Fed will flood the market with credit and buy the toxic stuff for as long as they can get away with it. So far, so good. And the Treasury will keep on issuing as fast as it can while rates remain subdued.
The other "duration" question is how long they will keep the crap they bought. Holding until maturity is certainly one possibility, but keeping the securities will keep liquidity in the system when it may not be at all desired. It seems the Fed is "experimenting" with selling the stuff via an "expanded distribution network of primary dealers"-- but I think the exercise is pretty laughable.
Why? Because adding liquidity to the system by buying this crap was easier than taking the liquidity away by selling it-- especially when there are no willing buyers. We either get to a winning buyer meets willing seller at, say, 40 cents on the dollar-- or we get willing seller meets unwilling expanded primary dealer network at 80 cents on the dollar. Either scenario isn't great. Taxpayers are still stuck with a hefty bill.
I wish I knew the answers to "how much" or "how many mortgages", but I think even the Fed is pushing until that point in time they meet resistance.
Its not just the primary dealers that the Fed is looking at to unload their virus MBS , it is the nations money market funds . Cash for Clunkers all over again . Fed sucks viable cash from MM in exchange for clunker MBS. To be rebought ,of course, at an agreed upon date and price guarantee . Yeah ,40c on a dollar , debt courtesy of US taxpayer . Time to stop the pillage before its too late . Grandma can say goodbye to her mm . Why , praytell did the 250k MM backing was lowered to 100k again. Cuz uncle Fed is out to rob us yet again.
money markets aren't FDIC guaranteed, and the Treasury program only had an initial period of 1 year with an option to extend it. What are you talking about?
I would call Neil Barofsy's estimate -23.7 trillion in assured bailouts if neccessary . The worse scenario to be about what Fed would have to buy up . What say ye ?
Quite erudite of you assetman.
MBS is the truck load of dope stranded on the side of the road waiting for is owners, but they know the consequences of putting the key in for another drive down the road. Better to find lessors to take that risk, for a price that might not be old street value, but not a total loss either. Especially when the county judge was was a investor from the start and will make hole the original deal with monies confiscated from the new buyers upon their capture...eh.
Skippy...legacy bond holders, as you alluded to are going to be made hole come hell or high water...generatinal devotion does have a price...patriots of the revolution are first inline...me thinks...anyone got their sheepskin going back to the immaculate birth, like the kings of old?
Dang, Skippy... you talk prettier than a 20-dollar whore. :)
Methinks you get it.
I think Gross knows how to play poker. Maybe he figured the bluff could only be working for so long...unless a new trillion hand joins the table.
Heh, Gross and El Erian are some of the best there is. They played the game until they knew the stakes were too high... As for Gross -
http://articles.latimes.com/1999/jul/08/business/fi-53953
Fresh out of college, Bill Gross parlayed $200 into $10,000 at the Las Vegas blackjack tables, and he lives on Monte Carlo Drive in Laguna Beach. Sound like the kind of guy you'd want handling your investment portfolio?
He lives in SoCal and sees the scam live and in living color so he's booking his government given profit and getting out of dodge.
And just as predicted by Deutche Bank and others the North East is falling in price. The REO hole card's gonna be a bitch ! MBS,CMBS heading lower.
+1 absolutely
Thank you, Bill! This is why you can trust your hard-earned money with PIMCO.
JM - which side of your yin yang philosophy permits you to applaud when your "hard-earned" money is increased at taxpayer's expense?
There's nothing zen about this, and there is no good in being bitter about the shark-infested waters of finance.
I suppose he could just hold on to piles of shit he could sell until the securities go to zero. But if he did, he wouldn't be doing his job, and he would be the only fool doing it. He isn't making the government buy the stuff.
If my tax dollars end up propping up every joe that doesn't pay his mortgage, permit some satisfaction in that I'm not getting screwed twice.
All the easy money has been made and the sheep fleeced. Bill thinks it's time to move on to greener pastures.
Whoops there goes another rubber tree plant.
Sold 30B in September? Piker. The Fed buys that in a week.
BG was pretty open about buying MBS when the basis was wide, he guessed correctly that the helicopter would hover over the MBS market and drop newly minted fiatcos down. Can't blame him for that.
I think he might be jumping the gun a bit, though. No way is Bernanke stopping in March. These purchases will be going on for at least another year.
Ghost, correct me if I am wrong here, but isn't PIMCO one of the primary custodians of the MBS purchased by the fed? If so PIMCO could have a very good understanding of the feds thinking on this patch of turf.
Ghost - I really appreciate all the insights you bring to this site, but given how plugged in BG is, I have to think he knows something you don't at this point.
i like what ghost has to say as well but 105130 brings up an excellent point.
Yes, I will admit that, he may have a good point, BG may be on to something.
IF Bernanke stops buying, Fannie and Freddie are dead in the water. Maybe not immediately, but eventually the spreads on their MBS will blow out, especially relative to Ginnie's, which have full faith and credit.
If that happens, the mortgage market moves to 80% FHA. Fannie and Freddie MBS becomes a collector's item.
More likely, I think, is BG is just unsure of the outcome, and since he has such a big book, he wants to unload it while there is good liquidity.
Also, as someone else has said above, he made the easiest gains already, anything from here would be gravy for him.
Another strong possibility, something I have also thrown out there before - the Fed stops buying, spreads blow out, the NAR, MBA, etc start screaming, and the Fed steps back in to narrow spreads. In that scenario, BG is best off selling now and waiting for spreads to blow out, then step back in front of the Fed.
Wash, rinse & repeat hypothesis. Thank you ghost.
I pretty much agree with your thought process, ghost.
I would think that BG knows that the Fed is sort of playing a game of high stakes chicken with buying MBS debt.
In my mind BG and PIMPCO are just executing prudent risk management. They bought at wide spreads with the expecation that someone would step in and eventually buy MBS at much lower spreads. It was a solid educated guess, and now the risks of getting a better incremental spread from these toxic instruments are greater than the contraints that could keep the Fed from buying more.
It's possible that the Fed could keep on buying through 2010. But a re-emergence of inflation or a dollar panic could spike risk asset premiums on a dime. Another possibility you brushed on is that BG and his group sees another flight to quality wave coming before the next QE 2.0 is launched and will wait for the next "spread widening" event, this time in cMBS.
Guessed?
He knows, he gets his info straight from the Fed
We have to guess, he already knows
potential limits on dark pools
http://www.bloomberg.com/apps/news?pid=20601110&sid=aSBh9eVcv_3U
I bank with Wells Fargo, if it is true that Bill Gross banks there it makes me feel a little better about their credit rating and survival chances.
Reading many of the comments above it would seem that some here thing there is little difference between Pimco and Goldman:
or are they smart connected people influencing decisions that impact outcomes or perhaps privy to decisions to assure outcomes - I forget how much Pimco made/saved off of the Fannie Freddie Rescue I think it was something like $7B
EXACTLY and NOBODY would buy that shit at that time if they didnt KNOW the outcome already, not guess, not hmmm maybe, KNOW.
Screw Bailout Bill and PIMPCO
Waldo
whoa, nelly! I wouldn't grace Goldman with such a compliment. The folks are PIMCO, Gross, Cumby, and that other guy, are actually pretty straight-shooting, honest, intelligent guys.
If I'm not mistaken there is another cretin lurking under the PIMCO logo,,Alan Greenspan, this could also be a conduit of timely data. No?
SNDK up 10% after hours..
Remember this run in 2005??
I was on that bus. That was one painful and frustrating hold from Jan to July.
This spurs a must re-watch for comedy:
http://www.hulu.com/watch/15503/wall-street-warriors-up-on-futures
"There's no better feeling than getting a guy on the phone that you really don't know, and forcing some stock (Sandisk) down his throat and he ends up buying it. That's what get me going every day."
"It's legalized gambling, babe" (hmm, this might be the only bit of intelligence of the whole show?)
"When Sandisk is at 70, we'll take y'all to French Polynesia"
The whole thing just made me laugh again. The boiler room, the flaky no-skill college grad turning down a real job for a shot at a daytrading trial and making zero salary (not sure she ever knew what she was actually doing), the 'fund manager...' Wasn't there also a kid who made some money daytrading penny stocks, and turned that into a fund with serious investors?
Hilarious.
The Warriors were on some HD channel I had a while back.
It's like watching flip that house meets Boiler Room.
PIMCO has certainly made money on this, but I would guess that the majority of the profit went to holders of the Total Return Fund (PTTRX), which is included in many 401(k) plans. I guess if my taxes are going to make this fund money, I might as well be on the other side as well by owning it in my 401(k).
Galleon also made money, but I would guess that the majority of the profit went to holders of their funds
Right, but comparing the "PIMCO Total Return Fund" to Galleon doesn't seem right. All of PIMCO vs. Galleon would be a better comparison. PIMCO just makes a 0.46% annual fee on PTTRX assets under management, and make nothing on the profits (it's not a hedge fund or anything - no 2/20 setup).
agreed
Humpty Dumpty Dollar sat on a wall. HDD had a great fall. All the kings horses, and all the kings men, couldn't put HDD back together again. Mary, Mary, quite contrary ... oh, never mind.
BB can afford to buy toxic assets, 'cause he prints the tender. I'm sure BG is rolling into a steeper curve.
Tonight:
FRONTLINE INVESTIGATES THE ROOTS OF THE FINANCIAL CRISIS
FRONTLINE Presents
The Warning
Tuesday, October 20, 2009, at 9 P.M. ET on PBS
http://www.pbs.org/wgbh/pages/frontline/warning/
Yes, and we should all "shake hands" with the government. Uh, huh.........
Perhaps his dealings with MBS were just temporary and this exit strategy was already in place at the time of the original hand shake.
Bailout Bill means shake the governments sack
Hey, alls fair. He said way t f back when that he was buying this stuff in his actively managed accounts for his clients because
1)it was cheap
2)he said that he wanted to own direct or implicit guaranteed paper
I don't like him one bit either, but this was an opportunity any investment manager had at the time.
Agreed, or individual investor. You could have bought MBB and gone long MBS.
As I pointed out this weekend, the plan is crystal clear. The HUD, FED, Fannie, Freddie, USTres, etc. own most of the residential RE in this country, and continue to lap it up daily. They now will morph into the largest landlord in the world as the foreclosure crisis winds down. As proof, look at the new Obama plan that came out yesterday. Notice the rental reference, they will be "forced" into landlord status since the mortgages are junk. You will buy their cars, rent their homes, put what's left of your money in their banks. The market will crash and the people will give up freedom for implied saftey. We can't stop it, they control our shelter, our money, and soon our freedom as we will work to serve them. This great experiment in personal freedom has failed.
Long live the king.
http://www.marketwatch.com/story/white-house-has-program-for-first-time-home-buyers-2009-10-19?dist=bigcharts
hey mira, I guess that dumbass Glen Beck filled you in on that huh?
Didn't the Soviets try that?
If I recall, it didn't work according to plan.
Much more profitable to let people have some space and convince them it's freedom, because others have it worse......
This was all fair game. He'd said at the time that he wanted to buy cheap government direct or implicit guaranteed paper and even said pubically that mortgaged backeds fit the bill and was openly public about doing this. No mystery.
PIPP, however is another whole 'nother can-o-worms.
Earning 5% on $1T of manufactured principle is a cool $50B per year. A number or dynamics are positive for the taxpayer. This scheme works as long as the Fed can contain rates.
Swapping crap for Treasuries and adding leverage is a truly riskless trade and Uncle Stupid is the best counterparty in the world. Hands down the best for every shark in the game.
Every big playa is doing this, not just Gross. China, Russia, etc.. The only people buying the agency crap is the fed and Vanguard. Egad.
Yeah - but you're missing the important points, which are he bought at an advantage when he knew there was a growing (subsidized) market, and is now selling & gaining accordingly.
Good point. No Gross fan here, he is a fascist insider imo.
Perhaps we shall find out how low they dropped the bar.
The reality is that the govi is going to back the agencies.
Assetman, I agree with most of your post however I do believe that you are incorrect in stating "stupid" in quotes. It's been the reckless FED from the start which has caused the bulk of this problem in the first plance. Unabated credit has been the bane of the current problem and the FED by printing money and buying hundreds of billions of $ of worthless paper is only making the situation worse. Why I believe they are stupid and not "stupid" is because of the fact they truly believe they are going to someway somehow wave a magic want and clean this problem up (eventually by removing liquidity from the system). Just yesterday, in an interview with Steve Liesman of CNBC, one of the Fed. Reserve Governors spoke flat out about not caring where the dollar goes. At least we know the truth. That being said...
1)Inflating one's way out of prosperity has never worked (I would like to see an example of where that has occurred).
2)While the US dollar is still the "global currency reserve", a lot of that depends on reputation and confidence...of which the latter is losing a lot of lately.
When each act is viewed individually, its not seen as bad but when the Feds actions are viewed as a whole, I see nothing but recklessness and stupidity.
Regards...
I do agree with the "recklessness" part, no doubt, whig.
I think we will need to look back years from now to determine who the really stupid actors were in the charade. Quite possibly, it will be the Fed. We already know our Federal regulators and private rating agencies are at the front of the complicitly stupid line.
My point is that Uncle Ben knows exactly what he is doing and why he is doing it. He's buying in MBS and other crap because he's taking a massive gamble that reflation will eventally work. He also knows that if it doesn't work, the massive losses will be transferred away from the financial system and into social fabric.
I think more than anything-- beyond reckless-- the Fed and Treasury are being dangerously myopic and hopelessly dependent on a Congress to 'do the right thing'. Their lack of understanding "unintended consequences" beyond the here and now may result in social upheaval if they miss the mark.
I've owned CDO's before and I take exception with you on one point ... you can find their true worth.
You log on to the firm's web site put in your CUSIP number and they tell you what it is worth ... simple as that.
LOL... precious.
So... PIMPCO loaded up on MBS to the tune of >85% with inside information (we KNOW Gross was in the conversations) prior to the Fed Buy announcement, then afterwards systematically offloads at the taxpayers expense over the course of the rest of the year. I'm supposing that their dumping of the MBS now can be interpreted as a confirmation that they know the program will NOT be continued. Regardless... add Gross to the line of high-profile insiders that should go to prison for stealing money from the American people (but won't).
perhaps this is not a popular opinion, but in his defense, he was very upfront publicly about what he was going to do and how & why he was going to do it (hint, hint). i remember reading it on this very site back last spring actually.
perhaps it's time to stop hatin the playas & start hatin the game (squid & JP's ghost excluded)?
I understand what you're saying, tip.e - but thought I had already addressed that by pointing out that he was part of the discussion well in advance of him establishing his "alibi" (public statements about what he was doing) ...
sorry IE didn't see that post until after i posted. i agree.
He said he was going to be buying MBS even before the spring, on the belief Bernanke would print money to buy MBS.
Can't hate the guy for that. I made a lot of money this spring-->fall going long oil. After March 18th I knew Bernanke would intentionally kill the dollar to bring on the illusion of an economic rebound. I had no inside info, I just did my homework on what a psycho Bernanke is.
Like you said, hate the game. This is all the Fed's doing. BG was just going along for the ride, like I was.
Ghost,
"...on the belief..." Really? You really think he was winging this one? You really think he left it to chance? I remember that panty-waist, high-pitched SOB whinning all over CNBC (when I still used to watch) in late-2008 and then getting a seat at the table with Paulson. The Nazis didn't invent evil and Goldman Sachs is not the only major financial firm sucking the American people of our wealth.
I assume you don't trade in the MBS market.
If you did, you would see this was pretty obvious.
This all started in March.
2008.
http://www.reuters.com/article/gc03/idUSN0760600920080307
Still, MBS spreads were rocky.
So the govt got the FHLBs involved.
http://www.reuters.com/article/topNews/idUSWAT00917420080324
Still not enough.
So Treasury got involved. They take over Fannie and Freddie, and promise to purchase $5B of MBS.
http://uk.reuters.com/article/idUKN0736878220080907
Then they increase that to $10B.
http://www.reuters.com/article/companyNewsAndPR/idUSN195214120080919
Doesn't take a fucking genius to see where this is going, especially when you are in that market every day. Gross was buying MBS the whole time.
We all know what happened next.
http://www.bloomberg.com/apps/news?pid=20601009&sid=av0kzMcRizRs&refer=bond
http://www.forbes.com/feeds/afx/2009/03/18/afx6183720.html
Gross was buying the entire time, because he was in the inside conversation the entire time (he knew the end customer for what he was buying - at a profit for him - was goind to be the Fed).
It is astonishing to see someone defend such blatant insider trading. He IS in the inside circle - no different that Lloyd or Jamie having their priveledged consulting meetings with Paulson. Someone in these positions should be forbidden from profiting from the conversations where their "expertise" is ostensibly being sought out.
Simple question - do you trade in the MBS market? yes or no
No.
Another simple question: Why?
BS. Gross was "consulting" with the administration, Fed, etc way back into 2008. He was consulted for his "expertise" (read: position as one of the biggest buyers of debt products), and he definitely would have to had known WAY IN ADVANCE what the Fed would likely be doing after the elections. His explanations of what he was doing when he purchased MBS was just marketing - and not an indication of what he was privvy to.
The old saying "what did they know and WHEN did they know it" applies here... and BG's behavior here is not luck, nor skill. IMO, he shows all that signs of having blatantly traded on insider information.
Read my post above. Do you trade MBS? If so, you would have had to been a fucking idiot to miss the signs. The government was scrambling to get anyone to buy MBS. Have TD put up a graph of the mortgage basis over that time - it was a roller coaster. As Fannie/Freddie/FHLB/Treasury piled in, the Chinese were piling out.
Paulson thought his bailout of Fannie/Freddie would stop it, but he fucked it up by not giving them full faith and credit, so there was no other choice to get the Fed involved (which was rumored in the market as far back as March 2008, if you happened to be in the market you would have known that).
What no one counted on, not even Gross I'd bet, was that Bernanke would try to corner the market. TD posted a graph back in the spring that I let him on to, when Bernanke's buyers pushed the basis to historical lows. It was insane.
If you want to get angry at anyone, get angry at Bernanke, he should have refused to buy their crap and forced the govt to put full faith and credit behind this monsters by nationalizing them.
But when Paulson didn't, it was either Bernanke stepping in as the buyer of last resort, or the agency MBS market imploding. Not hard to see what decision an idiot like Bernanke would make.
No - I don't "trade MBS"... lol, and I'm not an idiot in the financial industry ( I know there are plenty - so I forgive you for that assumption). I'm just an impassioned observer (read: victim)... but I'll forward Durden a chart if it gives me street cred....
My understanding is the Fed became the market for MBS because there WAS/IS no other viable market, and to keep rates low for housing. But.. your explanation seems twisted completely from all the rational explanations I've heard of this particular market, and from sources I've considered credible (all the usual suspects - CR, Mish, Denniger, etc). So let me respectfullly seek some clarification here:
So.. you're saying there was a "market" for MBS, and that the Fed somehow tried to corner the market to the dismay of others - as if they were an in-demand security? So it "hurt" Gross than the Fed was buying MBS? And that is why he's been bailing on MBS since the spring (even though now he's saying the actual reason he's getting out is because the Fed is too)? That seems... contradictory to me.
Anywho... I'm maintaining Gross knew that was going to happen all the time - and knew that loading up on the securities that NOBODY else wanted at the time was risk-free because of insider information he had about what was going to transpire. Your stated opinion about "what should have happened, but didn't" kind of proves that that the outcome was not actually obvious like you said, and supports my point as far as I'm concerned - that there was uncertainty in the market, yet Gross had certainty.
hate the game - agree. but how does the game ever get altered if the players exploiting its worst features are not shamed?
Thanks, IE. I had to suffer through reading almost everyone else on here giving mad props to the high-heeled voice of Newport Beach. Look, people, Gross (what an appropriate name!) has been gaming the system in the same way that Lloyd Blankfein has been gaming the system. Yes, they have different personalities and PIMPCO's business doesn't have quite the breadth of Government Squid, but they both make their money at the extreme expense of the U.S. taxpayer. More appropriately, future generations of U.S. taxpayers.
IE
Buffetts another one, talking up stimulus plans, Keynesian horseshit AND the adminstration like they are doing the right thing, makes me wanna puke
Screw him and Bailout Bill, they have something higher than a fiduciary responsibilities they have responsibilities as citizens not to pitch the administrations ruinous plans,
Waldo
Pimp-co.
Probably the largest paid advertising sponsor for CNBC outside of sham-wow and cash-4-gold. Phil and Mohammad are two of most frequent guest hosts.
As an aside, anybody notice the First Cash pawn numbers out of Mexico?
"Mexico pawn revenue grew by 38%"
How are we doing on building that wall?
oh yeh, bill gross was for the bailout...oh yeh we need that bailout to save the financial system. so we backstop his sorry ass and he makes money and leaves us holding the bag. i am getting sick of reading this story....time and time again.
At some level, everyone is playing blind. These people are just steering very large ships. Good for rough seas. Bad for rocks.
From the headline, I read that PIMCO made a 1.25% return?
What's your point?
I bought LQD last year following the Fed announcement that they would purchase mortgages and agencies.
IS there something wrong with that.
Pimco is a fiduciary. Anyone with a modicum of sense would have done that trade.
What was he supposed to do? Sit in Treasuries when there is a buyer of that kind of size.
if he didnt participate you would rightfully say that he is an idiot.
I still love my LQDs.
I also own 4 year GS and 4 year WFC.
I find it surprising that almost all the discussion about the FED purchases of MBS has been focused on the "monetary policy" implications.
Banks and other untouchables had (and have) a sh@tload of MBSs that were (and are worthless), and TARP, TALF and PPIP did (and do) not work at a large enough scale to bail them out... So instead of using a complicated "public-private partnership" scheme, the FED goes out and buys $1.25T or worthless paper... Just in case someone hasn't realized this, the banks have been refinancing mortgages like nuts... Refinancing a loan that is worthless into a new loan that is sold a week later at full value to the FED. And no bank bondholder losses a dime.
I am about to go nuts with so much nonsense!!!!!!!! The bankrupt banks funding themselves with FDIC-guaranteed bonds, and then the FDIC gets funded with advanced payments from the bankrupt banks!!!
http://www.prudentbear.com/index.php/guestcommentaryview?art_id=10299
Gotta love Pento.
"
A necessary period of pain must take place to reconcile the decades of imbalances caused by debt and artificially low interest rates. But those in Mr. Reich's camp are encouraging the government to step in where the market has demanded that the private sector bow out. However, since the nation's debt is our debt, such a course would only temporarily hold in abeyance the eventual deleveraging process.
If we pursue such a path, the next economic crisis will be much worse than the last one because we would enter it with increased leverage and a diminished private sector. The next time it will be government that needs the bailout. The only one around to "help" will be Banana Ben Bernanke and his printing press."
I have a question. Who participates in this $1 billion gain? If I have money parked at PIMCO, am I a beneficiary, or would this be a private deal for PIMCO only?
Pento is great and getting a little frustrated (as I think we all are). Question for you Ghost if you will humor me.. what are you looking for as a 'trigger event' on all of this. Is it a DXY at 72? Or something else? I keep waiting for something but every day I get a little more crazy. I'm trying my best to read up on the MBS market as well as Bernanke's past remarks (tough when you are a minion in canada) - always appreciate your insight..
cheers,
GC
Could somebody explain how the FED is going to take the bad assets they have accumulated and make them whole. In the old days alchemists believe they could convert lead to gold. Does Bernake posses special powers!
cymro33
http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_s...
Its all inside dealing. Bloomberg reports today that the Mets owner received 50 million in Madoff profits. Wilpon also received 500 million from CITIBANK/US taxpayor for the Mets free stadium courtesy of his friendship with Robert Rubin and Tim Geitner. This isnt right. But an Indian hedge trader is going to jail? Really? Really? The Indian guy is the criminal in all this? Really?
Gross has been heartily pitching his book and calling every bumble by the government a good move, quantitative easing, stimulus packages, Keynesian mumbo jumbo, all of it.
Hes just another money HO, working for government gimmes
Fuck him
PIMPCO!!
Waldo
I am an investor of PIMCO's Total Return Fund. I am quite happy with its performance!!!!!!
So much for position limits on crude:
http://www.ft.com/cms/s/0/f29dfaf2-bdd9-11de-9f6a-00144feab49a.html
And here I thought that the program of Fed buying MBS" was for NEW mortgages only, whereas in reality it was for existing mortgages. Live and learn.
Ridiculous futures spikes on /CL /ES + /NQ at 1:06 + 2:36 am. Our taxdollars at work.
Where is the conspiracy here? PIMCO has a duty to make profits for its investors, its generally good at it, and they've been talking about reducing mortgage holdings since mid July (see link). I remember particularly in September having a discussion about comments Gross had said then about reducing mortgage holdings because we were trying to decide whether to buy/sell more halfway through that little rally. Just because William Chepolis didn't know, doesn't mean the rest of the MBS market was not aware.
And, again, where is the conspiracy? Did you turn into a bunch of socialists that believe managers of our retirement funds should not be making a ton of money for our retirement? Go Bill!
Showdown in Chicago - American People vs Wall Street Banks
Oct 25-27
http://tinyurl.com/yzenaqs
Bring your ear plugs to defy the LRAD .
Bill
This is one that the Fidelity agent/ broker told me had no mortgage bonds in it . Ha! what deceit . or is it ignorance
PIMCO Total Return InstlPTTRX -The investment seeks maximum total return. The fund normally invests at least 65% of assets in a diversified portfolio of Fixed-Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. It invests primarily in investment-grade debt securities, but may invest up to 10% of total assets in high-yield securities (?junk bonds?). The fund may invest all assets in derivative instruments, such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities.
Now, that's what I call a lap dance!
They are only doing what they said they would be doing when they asked for the TARP money in the first place...buying toxic assets.
Now just wait till the homeowners realize the foreclosure process is the US Government vs. Joe Sixpack and the message is "Pay up or GET OUT of your Home."
Yup, keep the investor WHOLE and enslave the Working Man once again.
To think I wasted my life on petty crime when I could have been a bankster and gotten rich.
An interesting issue has come up with regard to MBS. The Dayton Daily News reports that bank foreclosures have stopped. No, there are more and more homes in default, the banks have just stopped processing foreclosures.
What has happened? The banks sold all the paper to the greater fool a long time ago. Do the banks even have any interest in processing foreclosures since the paper is now owned by the government?
Will it be politically possible for the federal government to foreclose on Fannie, Freddie, Ginnie, FHA debt? I see all the paper that the fed holds as garbage. Or the fed has to inflate the crap out of the currency?