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PIMCO Loads Up On Even More Mortgage Backed Securities In November As El-Erian Boosts Economic Forecast
First the bad news: in November the AUM of Pimco's flagship TRF fund did something it hasn't done since the Lehman collapse: it declined. After hitting an all time high of $255.9 billion in October, the fund's net assets dropped by $6 billion to "just" quarter of a trillion. Now the good news: Bill Gross is long ever longer duration positions, with his holdings of sub-3 Year paper the lowest since November 2008. The fund raised its Treasury holdings from 28% to 30%, and continues to accumulate ever more paper in the belly of the curve- between 3 and 10 years, which this month amounted to a total of 67% of all exposure. This is also the area that over the past month has gotten hit the worst, and is one part of the reason why the various publicly traded PIMCO indices have gotten whacked. But another far more important reason is that for the 6th month in a row the TRF's MBS holdings continue to scream higher, and have now are at 43% (with 10% margin cash): the highest since July 2009 when PIMCO was actively selling its MBS holdings to the Fed in anticipation of the end of QE1. With such a jump in duration, PIMCO better hope that inflation concerns don't pick up, as their part of curve exposure will be the first to be impacted.
The distribution of the various asset class holdings is below:
The Duration distribution is below.
And very ironically, and surprisingly, we are hearing that just released is Mohamed El-Erian's revised forecast to the 2011 economy, which he now sees growing substantially faster, and hitting 3-3.5% in Q4 2011, on the "massive stimulus"... but don't call it that in front of Larry Summers. Nonetheless, he still claims The New Normal is here. Too bad that this will mean increasing weakness for precisely those assets in which the TRF is most invested.
It can now safely be said that complacency is the New Normal (look at VIX), and a complete economic golidlocks is priced in by everyone, the same way it was in early 2007, despite a bankrupt Europe, insolvent municipals, and 9.8% unemployment. But don't worry, the Fed is in charge of the world: after all, what can possibly go wrong?
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Only thing boosted was their salaries. Pimco reintroduced their xmas bonus this year, announced it at the xmas party. That is on top of their regular year end bonuses.
Everyone ready for the overnight float higher in the stock index futures, happens just about every night.
I've been enjoying the overnight manipulation. Cmon if you can't beat them join them. Gains are spendable no matter where they come from.
http://www.pimco.com/Pages/AllentownDecember2010.aspx
with a quarter trillion in bond-type assets...i am checking out what IS the PIMCO version of Economic Reality...and WHAT sense of meaning/doing, 'contrarianism' is it?
""" continue to “level the playing field” via currency devaluation and an increasing emphasis on trade barriers and immigration, as opposed to constructive policies to make this country more competitive in the global marketplace."""
Meaning: http://www.zerohedge.com/article/john-williams-talks-bnn-about-great-hyp...
HOW DOES THIS WORK.?..what MIGHT be the plan? READ CAREFULLY WHAT PIMCO SAYS, their version of the USA and the dollar, and the sensible time-value-arbitrage ...CLEVER CLEVER CLEVER...
[ todays MBS junk in 3-5 years will be gold, and toadys Treasury 30 year bonds will be junk ]
TIME-VALUE-arbitrage for instance, the USA AAA+ 30 Treasury bonds are JUST AS MUCH JUNK BONDS AS THE PIMCO MBS junk being accumulated...BOTH should/will be subject to a BIG $ dollar devaluation, WHICH FROM 'INSIDE' THE USA will 'look like inflation' HENCE a premium demanded on bond interest rates INDEPENDENT OF THAT BONDS RATING..
AT A 50% debasement in 3 years, 25% compounded inflation rate, making todays 4% 30year AAA Net Present Value NPV worth 1/6 of the current price => in the 'secondary bond-trading market' an 84% PERMANENT HAIRCUT for TODAYS new issue 30 years...
WHEREAS, todays 'junk low tiered junk MBS .. 10-20%..interest equivalent bought at junk 65% haircut or more...NOW, would in a 25% inflation environment of 3 years duration...would take maybe, only an additional discount down from 65% to say 75%... so that AAA 30year lost 5/6 of PAR, whereas the 'junk' lost maybe 25% from todays already haircut/discounted PAR....=> the JUNK suddenly looks like a pretty good bet..
BUT...BUT...the RISK, Oh the Horror of the C- grade bond-risk...
WELL AT 25% inflation, paying off the those house debts with 50% depreciated dollars will be pretty easy, for those who have jobs, etc ...and better, for NEW BUYERss, PAYING OFF THE PRE-EXISTING LOANS @ PAR (bank negotiated, actually less than PAR, but still nearer to full original contract loan) VALUES, for a NEW LOAN... suddenly those JUNK bonds are looking pretty much A- risk..
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Consider Treasuries vs MBS. If the dollar has a problem (like being
worth zero), then so do Treasuries. MBS which pay off in dollars
wouldn't seem any better, except they likely hold some defaulted
mortgages and thus represent claims on real estate.
Which would you rather have, some claims on real estate or a claim
on the Treasury (which would pay you off in zero value dollars)?
RIGHT to the point...thats what i think i meant...assumes hyperinflation...which i think is written - PIMCO website seems VERY decided that deflation MIGHT apply 2011, but AFTER, inflation...lots
FYI
not yet junked....this is a concept, very poor, a draft sorry for the low standard of writing
I hate these mother fawkers with passion.
Everytime I see Gross's face on TV I feel like reaching for screen and ripping his throat.
No need to get all worked up. Gross is going to rip his own throat out by going to longer maturities. It's clinically insane.
Either El-Arian is a confused fool or he is a diversionary tool for Bronco Bill and his band of phunny philatelics
I'm bid mbs but haven't got a fill lately.
I'm thinking they talk.
No accident that Gross now owns a castle in Newport Beach, on a private island, secured by a drawbridge....
Paid $27 million for the original house on the property and promptly tore it down.
http://www.propgoluxury.com/EN/PropertyNews/California/995-bayfront-mansion-Newport-Beach.html
i'm uh...thinkin we can probably get to that, drawbridge or not.
but it must be nice to have so much fucking money you can spend the entire net worth of the incredibly rich just for a house.
let's raid it and make a big ZH hang out area out of it ...
community activities will be a big thing in the future, we all hang in there together ....
let's raid it and make a big ZH hang out area out of it ...
community activities will be a big thing in the future, we all hang in there together ....
You've tagged yourself: Soap Master.
I said it before, and will say it again: BAIT N SWITCH BEN!!!!!
He is going to carve out a chunk of the QE2 printed cash to funnel into MBS.
Ben's got everything under control ,just ask Bill ..........
excuse me damnit...that money is reserved for stocks...so "fock off"!
Watch this,could be reality soon.
http://www.youtube.com/watch?v=OTSQozWP-rM&feature=player_embedded
TRF has been underperforming every
plain vanilla intermediate term bond
fund for over a month now.
Hey ZH! You misspelled it- it's Pimpco.
It's all sunshine from here on out. I hope. Isn't this what a bottoming is supposed to look like? Or a bottomless pit. The jury is still out.
VIX is ready to soar. Lots of complacent types are going to see their longs catch fire.
GMCR getting blowtorched after guidance adjustment....
That's cuz I have my year's supply in.
El-Erian is just selling Pimp-co's book. I'm sure he gets giant bonuses too.
Welcome to the twillight zone.
Seriously, someone take the kool-aid punch bowl away from El-Erian before somone gets hurt.
Cash n Carry is a helluva man!
What about deflation concerns picking up... I wouldn't expect long duration debt-backed securities holding up too well in that scenario either, especially ones backed by worthless mortgages.
Fed Dec 14 meeting: no doubt the will add MBA purchases to the QE. Ben won't let his buddy Bill down.
I don't care what the fund has done the last month- bet against PIMCO at great risk.
You got that right, Yancey......
You idiots stay out in the cold and bitch, bitch, bitch.....
I'll stay in here by the fire with Bill and dorky ass Greenspan where it's nice and warm and the dollars are flowing like vintage '94 Porto!
Fonseca '94 and Davidoffs......Merry Christmas ya broke bitches! LOL
Doesn't the situation itself speak to this? But it's the same old risk money, make or lose money. Good luck.
Bill front runs Ben, and I'll front runt Bil - safest bet right when the Casino is rigged.
I'd tend to agree w/ you Dr., that's what has me wondering about the conclusions being drawn that PIMPCO's going to lose any money here? You know they know something we all don't know....
New to this site...first post...so what do you think this eman for equities...up, up and away?
Also, question...looking for a good investment course for the wife!!! about an intermediate type course on equities, options, etc...any suggestions...
Tyler, I'm gonna be blunt. I admire your woody for Gross. Many know that this is the guiding inside story (Paulson is untouchable.) Please keep it coming.