Bill Gross Goes Massively Short Cash As He Bets The Newport Farm On Uber Duration

Tyler Durden's picture

Two things stand out in the just released September holdings update of Pimco's flagship Total Return Fund: first, what appears to be a record cash short of 19% of the fund's total unchanged AUM of $245 billion, doubling the previous short of -9%. The incremental cash was used almost entirely to purchase Mortgage Backed Securities, which jumped to 38% of total from 32%, even as the fund kept its government exposure virtually flat at 22%( 21% previously).

Yet where it gets downright surreal is the duration and maturity exposure of the fund. Duration has gone from a record low 3.6 in March to 4.56 in July to 6.27 in August to... well, just look at the black line on the chart below.

That's either what is called betting one's farm on Operation Twist, or, betting one's farm that the next thing to be purchased by the Fed in QE3 or QE4 depending on how one keeps count, will be Mortgage Backed Securities. As a reminder, the last time Gross saw such a surge in MBS holdings in the TRF was side by side with the phased out roll out of QE2 when it was unclear if the Chairman would be buying USTs or MBS.

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depression's picture

The Japan 2.0 Trade

Gross is mirroring every move Bernanke is making.

Corn1945's picture

Not at all. He was a huge fade the last time and will be this time.


Snidley Whipsnae's picture

Interesting change of opinion for Gross... From 'US Ts are the short of the century' to 'We are in for a long depression (economic contraction) so any return on investment, even a very low per centage one, is good news'...

I wonder what Gross has done about his exposure to junk bonds? When he dumped Ts didn't he go heavy into corporate 'junk'?

The sad part is Gross is probably right... locking a low per centage return on investment in an economic contraction. He has figured out that central banks cannot print enough fiat/bonds to off set the coming economic deflation without wrecking all soverign bond mkts and the financial system. Gross is pretty nimble for someone managing such a huge amount of assets.

surf0766's picture

Does this mean I will be walking to work soon?

AGuy's picture

No, to the Soup Line!

Snidley Whipsnae's picture

What soup? All the US beans have been sold to China. Maybe the Fed is working on a new recipe for TBill Soup?

prains's picture

Does this mean I will be walking to work soon?

No, you'll be pushing me in a grocery cart.

Smiddywesson's picture

This is bullish and reminds me of a campaign idea:

Heavily tax autos and force everyone to use rickshaws.  It would immediately solve our dependence on foreign oil, fix the jobs problem, defeat the obesity problem, and take the pressure off of the health care problem because of all the cardio everyone is doing.

Smiddy for President, change you can believe in.

jcaz's picture

Good find-  Bill gets to front-run the Fed, so makes sense.

Rich_Lather's picture

What doesn't make sense is he is doing this in front of a long-propagadized war with Iran and an ensuing trade war with China....soon to be hot war. He, and his investors will soon get their asses handed to them.

kito's picture

bill had his ass handed to him when he traded based on the naive idea that nobody would buy treasuries after the fed walked away. hasnt worked out to well and wont for a while. there will be no qe3, i dont even understand why people even use the term anymore. qe3 is going the way of the latin language.

CapitalistRock's picture

QE3 is already happening. Take a look at a chart of M2. Money is exploding onto the scene and has been since the first week in Aug.

Buy gold or be Bernanke's bitch.

kaiserhoff's picture

I'd love to see that, but when money supply explodes we won't need any pointy headed economists or media mavins to tell us about it.  It will be pahty time.

CrazyCooter's picture

Jim Rickards' thesis (if I don't misunderstand) is that there is no more overt QE unless things really bad. His opinion is that the size of the balance sheet of the fed is so huge, that just the principal payments that come in the door can simply be re-invested in additional purchases enabling them to effectively QE without additional LSAP type programs.

I am not skilled or knowledgeable enough to call it one way or the other, but its an interesting perspective. Devil is in the details on that I suppose.



dark pools of soros's picture

so it is a catalyst of growth via interest 're-investment'

truely Gods work..  that and bombing the hell out of anyone that doesn't play along



Snidley Whipsnae's picture

"that just the principal payments that come in the door can simply be re-invested in additional purchases enabling them to effectively QE without additional LSAP "

Perpetual motion has finally been achieved!

Jim Rickards provides a lot of useful information... but don't believe everything Jim, or anyone else, has to say. Remember, Jim's biggest client is the US Gov.

CrazyCooter's picture

I understand your position 100%.

However, he is the only one to say it (vs the MSM screaming at the top of their lungs) and it makes a lot of sense with the caveat I didn't do the math and the math may be a complete lie.

I like to see ideas floated and shot down. If an idea is really solid, like an old sailing ship, it can be shot and and retain its form. A weak ship sinks.

I like to post stuff like this on ZH, because if it was clearly without merit it would get fed upon. Give me a reason to doubt or question the logic.



Jack Napier's picture

They know full well what will happen to gold and silver if they formally announce QE3, and that would send the dollar into a death spiral. This is the a lot like visiting the ATM over and over instead of doing a large withdrawl that would trigger the background check.

TheGoldBug's picture

Disagree. Those 15 Primary Dealers will keep borrowing at 0.75% federal discount rate, and investing in USTs at 3.75%, making whole 3% on 1.6 trillion US debt, which is $59 bln of real cash per year, given total Wall Street ernings barely exceed $150 bln per year

Money 4 Nothing's picture

Well, why do I have to press 1 for English?

JuicedGamma's picture

Would you feel better if it were 2?

Hedge Fund of One's picture

I think Bill needs to stop following the Fed which tends to follow the economy. The mystique that the Fed moves the economy should have been broken when the markets and the economy fell through most of the worst of the 2008-2009 bear after QE1 was announced and as it was being executed. 

Rynak's picture

But unfortunatelly, the CBs DO move the STOCK-market, trust-markets and FX-markets..... everything EXCEPT of "the economy (tm)".... until they don't. As the current situation stands, what will happen NEXT will be decided by the CBs.... what happens AFTER THAT.... is anyone's guess. I for my self, would run for the hills, regarding the "after that".

eureka's picture

The Latin language is still here - in simplified version - it's called english.

Popo's picture

Fail. English is Germanic and not based on Latin dummy.

jeff montanye's picture

he should have said french, italian and spanish.  some latin in english due to french via the norman conquest, 1066.

jeff montanye's picture

p.s. so bill gross was massively short bonds at 4.5% and is now very long at 3%.  and he makes money this way?  (or, his customers make money this way?  he takes a fee on assets, as long as they are there.)

disabledvet's picture

Zero pass the Poupon!

ZeroPower's picture

Looks like he was fully "invested" in Op Twist - decreased front end and increased belly as well as long end of the curve.

I am a Man I am Forty's picture

bill gross is off of his game, for him to bet so big is dumb, the older these guys get the dumber

buzzsaw99's picture

He got short at the wrong time and went long-long wrong also. He and John Paulson don't look so hot when "da boyz" don't have their back anymore:


BurningFuld's picture

True true. Why didn't they just buy Gold?

DeadFred's picture

I failed 'wonk' in school but if yields go up he will have his ass handed to him, correct? We live in a crazy world, how can he be so sure even if he sits at Ben's right hand?

buzzsaw99's picture

In Gross's world it is all about relative performance and public image. As to your questions:


1) Gross can hold bonds to maturity unless there are massive outflows, what he risks is opportunity lost-cost.

2) IMO he got kicked out of the club for shooting his mouth off some time ago:

He sits somewhere south of Ben's right hand at the moment. His instincts have failed him lately, and even were he back in "da boyz" good graces he could still easily wind up on the shit end of the schtick.

High Plains Drifter's picture

if i am not mistaken i haven't seen him around on cnbc for a long time, either, he or his trusty side kick, el erian...........there was a time when it seemed like they camped out there......perhaps there is no honor among thieves............oh i promise you. they want what pimco has and they want it real bad, so they might go after his fund and clean it out......

Vic Vinegar's picture

I don't think those PIMCO cats are hiding.  El-Erian was on for a full hour last Wednesday during which time Zero Hedge was mentioned quite a bit.  Joe Kernan referenced how the site was run by "some Russian guy" who got in trouble for securities violations.  The hating was on full display.

jeff montanye's picture

the amount of a putative securities violation is in inverse proportion to the punishment meted out: steal a thousand get fined/go to jail; steal a billion become treasury secretary.

High Plains Drifter's picture

i keep thinking they want to skin kyle bass too...........

chump666's picture

Are PIMCO watching China or commodities, or Brazil maybe cutting rates again?  What about gold flatlining to a downside sell anytime soon or China dumping huge amounts of Yuan to buy USD's (right about now).  Lets see China v's Pimco...or better still a creditor nation going down v's a debtor nation barely functioning (US) = QEwhatever will have no effect.  USD will be bid


Mutatto's picture

Does this not get in Kyle Bass' face and his bet on a PrimeX collapse?






Maybe-Not's picture

No! Just means it will take longer. Or primex deteriorates massivley and that is the catalyst for QE REFI

Mutatto's picture

If "primex deteriorates massivley" then Bill Gross = FUBAR and Kyle Bass will be laughing all the way to the bank......AGAIN.

Maybe-Not's picture

Gross got fooled once. Not again. Massive mortgage refi plan coming (Bruce Krasting last month) to let home owners refi (under water, behind, what ever) and the bond holders, banks, investors,  will accept the plan even though it will extend the duration of being made whole. Curtain #2 is worse.

AlmostEven's picture

Curtain #2: A gazillion dollars in side bets on MBSs go bad as property values slide. Banks go boom (in the bad way)!

As for Refi2012, it will likely be in the form of lowering interest rates, but it might be fiscal policy, not Fed. Where/how does the Fed jump in to this mix?

Smiddywesson's picture

Maybe-so.  A massive mortgage refi plan would jump start the discretionary spending of a lot of people and also get rid of a lot of title issues hanging over the industry.  Two birds with one stone during an election year. 

mynhair's picture

Can I haz a piece of the other side, pleez?