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Why Everyone Should Be Watching PIMCO (In 2 Worrying Charts)

Tyler Durden's picture




 

By now it is clear to everyone that the force-feeding of free-money into financial markets by The Fed et al. has led to a scale of financial repression never before witnessed as bond yields for even the riskiest of risky names collapse to record lows and cheap-financed share buybacks raise leverage to record highs and support an ever more fragile equity wealth creation machine. As Blackrock (and many others) have recently proclaimed, the corporate bond market is "broken" and the risk posed by investors trying to dump bonds is"percolating right under" the noses of regulators; so it is with grave concern we suggest the following two charts - showing the massive out-sized holdings of PIMCO's funds in the high-yield and emerging market debt markets leave a bond marketplace in fear that forced sales via redemptions are the straw that breaks the 'central bank omnipotence' narrative's back...

 

PIMCO - simply put - dominates the market for high-yield and emerging market debt...

Source: IMF

And if you are under some mistaken belief that they can fund redemptions from cash or more liquid assets... think again...

 

 

In other words, the massive (and likely levered) positions The Fed has forced the world to take on by its repression face a dramatic liquidity risk cost if they are ever to 'realize' any gains from the Fed's handouts (by actually selling).

That's what every bond manager 'knows'...

*  *  *

As Blackrock concluded,

To BlackRock, the dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment, and need to be addressed before market stress returns.

 

...

 

The risk posed by investors trying to dump bonds after the Federal Reserve raises interest rates is “percolating right under” the noses of regulators, he said.

 

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Sun, 10/12/2014 - 14:35 | 5321271 kaiserhoff
kaiserhoff's picture

Just so, but it's not only bonds. 

Stocks, real estate, pensions, and government at all levels are being held, suspended in midair by this house of cards.

Somehow, there is never a good day to stop sniffing glue.

Sun, 10/12/2014 - 15:53 | 5321482 DonutBoy
DonutBoy's picture

Absolutely true, but only the bond market has the potential to unravel because of the firing of one man.  That's a measure of how inverted the pyramid has become.  Is Bill Gross a black swan?

Sun, 10/12/2014 - 17:44 | 5321654 KnuckleDragger-X
KnuckleDragger-X's picture

The people running around saying bonds are a safe investment might have a few problems ahead...

Sun, 10/12/2014 - 19:40 | 5322164 Bangalore Equit...
Bangalore Equity Trader's picture

Listen Boy.

Gross timed his exit like an insider with "INFORMATION".

Sun, 10/12/2014 - 14:36 | 5321274 X.inf.capt
X.inf.capt's picture

you should'nt have forced him out!!!

Sun, 10/12/2014 - 14:38 | 5321280 skbull44
skbull44's picture

So, will the sound of the global Ponzi collapsing actually be heard if no one wants to hear it??

 

http://olduvai.ca

 

Sun, 10/12/2014 - 14:53 | 5321324 fauxhammer
fauxhammer's picture

The collapse will be televised exclusively on iWatch...so, no.

Sun, 10/12/2014 - 14:42 | 5321286 FieldingMellish
FieldingMellish's picture

The Fed won't raise rates. Problem solved... for now.

Sun, 10/12/2014 - 14:53 | 5321322 disabledvet
disabledvet's picture

The theory that "reserve banks" control anything is just that.

A THEORY.

"The Fed ain't hiring" and they can't create final demand either.

Now the entire US healthcare system is under attack....from whence comes the liquidity again?

I'm thinking "forced normalization" as rates of return suddenly revert.

Reaching for yield is one thing...reaching for return however

Sun, 10/12/2014 - 15:03 | 5321343 FieldingMellish
FieldingMellish's picture

Sure they can and they have been doing for the past 5 years. Just print and buy. Just print and buy. The only thing that suffers is the dollar... and the taxpayer... and the 99.99% who don't have access 0% rates.

Sun, 10/12/2014 - 18:30 | 5321924 Midnight Rider
Midnight Rider's picture

Listen to your own logic. If the 99.9% suffer, end demand will suffer. Period, end of story. Fed looses. We all loose. The Fed is destroying the economy with their clueless untested policies. Pure desperation. All that is occuring is a massive wealth transfer to the 1% who can only buy so many yachts. This thing will flame out in grand fashion. Getting closer every day.

Sun, 10/12/2014 - 16:14 | 5321544 kaiten
kaiten's picture

Yes, problem solved until the whole house of cards collapses.

Sun, 10/12/2014 - 14:43 | 5321288 Alex Lionson
Alex Lionson's picture

What prevents Fed from bailing out PIMCO?

Sun, 10/12/2014 - 14:52 | 5321316 U4 eee aaa
U4 eee aaa's picture

Nothing. The minute they are starting to lose the game they change the rules.

Say mold, say mold (<----joke)

Sun, 10/12/2014 - 14:54 | 5321321 Urban Redneck
Urban Redneck's picture

Treasury's desire to seize PIMCO's AUM in order to underwrite Washington's profligacy just a little longer...

But to the little guy on the street it will look like a bailout and smell like a bailout, it just won't quack like a bailout - since those who are supposed to profit by a bailout will lose instead...

Sun, 10/12/2014 - 15:36 | 5321427 ebworthen
ebworthen's picture

Exactly - just look at their top 3 holdings of high yield external debt:

 

  1.  Ally Financial (GMAC rebranded).
  2.  SLM or SallieMae (student loans).
  3. AIG.

!!!

Sun, 10/12/2014 - 17:45 | 5321773 SAT 800
SAT 800's picture

Wow; that's amazing. No risk, there. what could go wrong? Thanks; I'll be remembering this; (if I'm lucky).

Sun, 10/12/2014 - 14:56 | 5321330 Par Contre
Par Contre's picture

None of this will matter when Ebola has wiped out the human race.

Sun, 10/12/2014 - 17:47 | 5321777 SAT 800
SAT 800's picture

Look, I keep tellin ya, we need more playful kittens and smiling puppies on here, or it's going to get depressing? how about it, huh? playful kittens? why not.

Sun, 10/12/2014 - 14:57 | 5321331 sheikurbootie
sheikurbootie's picture

It just a matter of time....but, I'm tired of waiting.  Hurry up and crash this shit.

Sun, 10/12/2014 - 15:23 | 5321411 Amish Hacker
Amish Hacker's picture

Those charts look like a row of dominoes, seen edge-on.

Sun, 10/12/2014 - 15:35 | 5321445 moneybots
moneybots's picture

"a scale of financial repression never before witnessed"

 

And what is waiting on the other side of that scale?  Something else never before witnessed.

Sun, 10/12/2014 - 15:37 | 5321449 Caviar Emptor
Caviar Emptor's picture

Nobody can predict the effects of loss of faith in the corporate bond market.

Sun, 10/12/2014 - 17:49 | 5321781 SAT 800
SAT 800's picture

OH yes they can; but I'm not going to be the one to do it; let somebody else take the blame for it; my oficial position is, "I don't know nuthin".

Sun, 10/12/2014 - 22:55 | 5322754 TheReplacement
TheReplacement's picture

Government, "We need to do something.... for the children."  Seen it already.

 

 

Sun, 10/12/2014 - 15:49 | 5321464 moneybots
moneybots's picture

"To BlackRock, the dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment, and need to be addressed before market stress returns."

 

Horses are already out of barns.

I heard the other day that regulators are getting concerned about sub prime auto loans.  The time for them to have started getting concerned about them was back when Zero Hedge brought up the subject- a long time ago.

BlackRock is a day late and a dollar short.

Sun, 10/12/2014 - 16:06 | 5321529 q99x2
q99x2's picture

Print.

Sun, 10/12/2014 - 16:19 | 5321554 Ewtman
Ewtman's picture

U.S, Treasury yields are about to rise to completely unexpected levels. This rise will probably happen quite quickly and will come as a total surprise to most investors, traders, and mainstream economists, who are currently watching yields decline with no expectation of a significant reversal.

Here's an Elliott Wave look at the future of the 10 YR,

 

http://www.globaldeflationnews.com/10-yr-treasury-index-yieldelliott-wav...

Sun, 10/12/2014 - 17:50 | 5321791 SAT 800
SAT 800's picture

I'm about 99% sure you're wrong. the flight to quality in US Bonds and Notes is just getting underway; look forward to further increases in the price of the intruments; ie; lower rates.

Sun, 10/12/2014 - 18:24 | 5321906 FreedomGuy
FreedomGuy's picture

We are stuck in QE and ZIRP more or less forever. The government which is the biggest borrower in the world goes bankrupt with as little as a 2% rise in rates and the bond market goes south if the Fed stops supporting it. In fact, the bond market, traditionally the hedge against stocks is now in tandem as interest rates have been squeezed in order to move money into stocks and asset prices.

One day I am hoping we become government atheists...meaning we give up our religious beliefs in the wisdom, caring and expertise of government as if it is a god. They are men, fallible men with their own agendas and flaws.

Sun, 10/12/2014 - 22:57 | 5322764 TheReplacement
TheReplacement's picture

You should hop on over the msnbc.communist.  They are the ones who need convincing.  Here as ZH, we get it, even if we don't really get it, we do get it.

Sun, 10/12/2014 - 18:27 | 5321911 starman
starman's picture

watch these fucking "hedge funds" suing the Fed in the coming months! We want our money back and shit! what a fucking shit circus!

Sun, 10/12/2014 - 20:04 | 5322250 no say
no say's picture

In what court ?

 

Sun, 10/12/2014 - 19:10 | 5322061 besnook
besnook's picture

so el erian and gross knowingly got out before they start throwing shit at the fan.

Sun, 10/12/2014 - 23:01 | 5322773 TheReplacement
TheReplacement's picture

I do recall comments after the arab named guy left that it smelled like a play at the town theatre. 

"You just get out and save yourself.  I'll be right behind you."

Sun, 10/12/2014 - 20:12 | 5322276 CHX
CHX's picture

Non-sustainable doings - including CB "monetary policies" work until they don't anymore. How long can they hold it back together? That's the current ~2 quadrillion $ question.

Sun, 10/12/2014 - 20:36 | 5322353 Lmo Mutton
Mon, 10/13/2014 - 14:25 | 5324946 StrikerMax
StrikerMax's picture

Oldest trick on the book ...

Gross gets out of the PIMCO because he KNOWS bonds aregoing to Blow out! So ... he gets out Before and then tells everyone ... see ... I was so so good that the market collapsed ...

Typical!

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