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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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Tue, 10/11/2011 - 19:10 | 1763304 depression
depression's picture

The Japan 2.0 Trade

Gross is mirroring every move Bernanke is making.

Tue, 10/11/2011 - 19:17 | 1763360 Corn1945
Corn1945's picture

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


Wed, 10/12/2011 - 06:14 | 1764818 Snidley Whipsnae
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.

Tue, 10/11/2011 - 19:05 | 1763307 surf0766
surf0766's picture

Does this mean I will be walking to work soon?

Tue, 10/11/2011 - 19:12 | 1763330 AGuy
AGuy's picture

No, to the Soup Line!

Tue, 10/11/2011 - 20:12 | 1763557 LongSoupLine
LongSoupLine's picture

The "LongSoupLine"

Wed, 10/12/2011 - 06:16 | 1764820 Snidley Whipsnae
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?

Wed, 10/12/2011 - 00:10 | 1764421 prains
prains's picture

Does this mean I will be walking to work soon?

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

Wed, 10/12/2011 - 08:57 | 1765093 Smiddywesson
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.

Tue, 10/11/2011 - 19:06 | 1763309 jcaz
jcaz's picture

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

Tue, 10/11/2011 - 22:35 | 1764148 Rich_Lather
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.

Tue, 10/11/2011 - 19:14 | 1763342 kito
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.

Tue, 10/11/2011 - 19:23 | 1763386 CapitalistRock
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.

Tue, 10/11/2011 - 19:33 | 1763435 kaiserhoff
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.

Tue, 10/11/2011 - 20:01 | 1763526 BurningFuld
BurningFuld's picture

No QE3 = USA Bankruptcy 

Tue, 10/11/2011 - 21:29 | 1763855 CrazyCooter
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.



Tue, 10/11/2011 - 22:26 | 1764100 dark pools of soros
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



Wed, 10/12/2011 - 06:25 | 1764825 Snidley Whipsnae
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.

Thu, 10/13/2011 - 01:40 | 1768564 CrazyCooter
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.



Wed, 10/12/2011 - 12:01 | 1766033 Jack Napier
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.

Wed, 10/12/2011 - 03:13 | 1764705 TheGoldBug
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

Tue, 10/11/2011 - 20:02 | 1763528 Money 4 Nothing
Money 4 Nothing's picture

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

Wed, 10/12/2011 - 04:44 | 1764779 JuicedGamma
JuicedGamma's picture

Would you feel better if it were 2?

Tue, 10/11/2011 - 20:54 | 1763724 Hedge Fund of One
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. 

Tue, 10/11/2011 - 21:23 | 1763807 Rynak
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".

Wed, 10/12/2011 - 00:21 | 1764451 eureka
eureka's picture

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

Wed, 10/12/2011 - 00:59 | 1764534 Popo
Popo's picture

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

Wed, 10/12/2011 - 03:19 | 1764709 jeff montanye
jeff montanye's picture

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

Wed, 10/12/2011 - 03:23 | 1764711 jeff montanye
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.)

Tue, 10/11/2011 - 19:15 | 1763348 disabledvet
disabledvet's picture

Zero pass the Poupon!

Tue, 10/11/2011 - 19:18 | 1763364 ZeroPower
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.

Tue, 10/11/2011 - 19:20 | 1763372 I am a Man I am...
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

Tue, 10/11/2011 - 19:53 | 1763483 buzzsaw99
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:


Tue, 10/11/2011 - 20:03 | 1763531 BurningFuld
BurningFuld's picture

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

Tue, 10/11/2011 - 20:15 | 1763565 buzzsaw99
buzzsaw99's picture

They did, but lately it is emerging markets bitchez:


Tue, 10/11/2011 - 20:28 | 1763614 DeadFred
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?

Tue, 10/11/2011 - 20:57 | 1763658 buzzsaw99
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.

Tue, 10/11/2011 - 21:39 | 1763914 High Plains Drifter
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......

Wed, 10/12/2011 - 00:10 | 1764422 Vic Vinegar
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.

Wed, 10/12/2011 - 03:29 | 1764720 jeff montanye
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.

Tue, 10/11/2011 - 22:05 | 1764023 High Plains Drifter
High Plains Drifter's picture

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

Tue, 10/11/2011 - 19:20 | 1763373 chump666
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


Tue, 10/11/2011 - 19:42 | 1763468 PeterB
PeterB's picture


Tue, 10/11/2011 - 19:21 | 1763378 Mutatto
Mutatto's picture

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






Tue, 10/11/2011 - 19:32 | 1763428 Maybe-Not
Maybe-Not's picture

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

Tue, 10/11/2011 - 20:36 | 1763646 Mutatto
Mutatto's picture

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

Tue, 10/11/2011 - 19:29 | 1763410 Maybe-Not
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.

Tue, 10/11/2011 - 21:44 | 1763939 AlmostEven
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?

Wed, 10/12/2011 - 09:21 | 1765155 Smiddywesson
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. 

Tue, 10/11/2011 - 19:29 | 1763415 mynhair
mynhair's picture

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

Tue, 10/11/2011 - 19:31 | 1763425 Everybodys All ...
Everybodys All American's picture

It looks to me like he is counting on Obama/Bernanke to buy the household mortgage obligations in the form of QE3. Wrong for now.

Tue, 10/11/2011 - 19:33 | 1763438 Maybe-Not
Maybe-Not's picture


Tue, 10/11/2011 - 19:35 | 1763442 mynhair
mynhair's picture

Maybe he's betting on EURUSD to 1.40 thru the back door.

Tue, 10/11/2011 - 19:39 | 1763461 mynhair
mynhair's picture

When do these moron protesters hit Newport Beach?


Tue, 10/11/2011 - 19:44 | 1763475 Cheesy Bastard
Cheesy Bastard's picture

When Newport Beach offers them $600 per week plus buffet meals plus a life coach and all the doped up coeds they can connive into the tent.

Tue, 10/11/2011 - 19:42 | 1763466 Slash
Slash's picture

1. let benron twist worthless MBS's up in value on banks balance sheets/SIV's

2. Announce QE 3

3. Create trillions to buy worthless MBS from banks

4. Profit! (for the banks)

5. everyone else loses

Wed, 10/12/2011 - 00:20 | 1764448 TheMerryPrankster
TheMerryPrankster's picture

Is that a rerun? I think I saw this movie already, and I didn't like the ending the 1st time.

Tue, 10/11/2011 - 19:43 | 1763469 Pancho Villa
Pancho Villa's picture

Everyone that I know with a mortgage is in the process of refinancing now. Maybe he is assuming that most of the long duration stuff will soon be refinanced, so that it is effectively short term debt which pays long duration rates.

But if he is purchasing newly created long term mortgages and interest rates go up after operation twist, he would be stuck.

Tue, 10/11/2011 - 19:43 | 1763473 mynhair
mynhair's picture

And the EURUSD still doesn't give a CIT.

Tue, 10/11/2011 - 19:50 | 1763491 jcaz
jcaz's picture

LOL-  Bill never "missed out" on anything-  the money he didn't make by staying in his Treasuries?  He made it somewhere else-  he wasn't in cash.  Pimco is VERY happy with Bill, quit believing CNBC shrieks.....

Wake up-  Bill has been front-running the Fed- with their blessing- since he started meeting with the Fed-  Tyler just gave us a nice lob here.

Tue, 10/11/2011 - 20:23 | 1763589 buzzsaw99
buzzsaw99's picture

I guess you missed Billy "crying in his beer" in August. Now every bond fund with treasuries in it is soaring like an eagle while Gross is left chasing last month's rally and buying Chinese B shares. LMAO!

Tue, 10/11/2011 - 20:45 | 1763683 jcaz
jcaz's picture

LOL-  watch CNBC a lot, eh?  Bet you follow Cramer like he's your God....

BTW, how much- EXACTLY- did Bill miss out on?   Duh......

Tue, 10/11/2011 - 20:53 | 1763721 buzzsaw99
buzzsaw99's picture

CNBC? Where did you get that?


"When you're underperforming the index, you go home at night and cry in your beer," the Financial Times, in its online edition, quoted Gross as saying...

Tue, 10/11/2011 - 20:17 | 1763572 steve.stuart
steve.stuart's picture

sorry to be naive ... what does his holding indicate to a common man? how to interpret it ?

Tue, 10/11/2011 - 20:44 | 1763680 DeadFred
DeadFred's picture

Obama and the Fed will soon announce a plan to save the US by having the bad mortgages refinanced at today's uber-low rates. By holding the old 'bad' mortgages you get paid off nicely when the refi's convert your securities to cash. Not much you or I can do unless your mortgage qualifies. Who can tell what the unforeseen consequences of yet another intervention will be, but you can bet the farm those consequences will bite us somehow.

Tue, 10/11/2011 - 20:20 | 1763581 PulauHantu29
PulauHantu29's picture

The Bernank said he was going to buy up MBS ( and long Treasuries) so no surprise there. It's easy money for Gross.

Tue, 10/11/2011 - 20:43 | 1763672 Caviar Emptor
Caviar Emptor's picture

Betting the farm on Fed bailouts aka fascism-light: more central support (aka corporate welfare) for a diminishing charmed circle standing huddled on a tiny island surrounded by a rising tide. :-) 

Tue, 10/11/2011 - 20:47 | 1763692 msmith
msmith's picture
Price action may be indicating another push higher yet for equities.  We may have new levels to focus in on for the SPX and the DX.
Tue, 10/11/2011 - 20:47 | 1763693 papaswamp
papaswamp's picture

Some serious dice rolling going few months will be more exciting than I thought....excellent.

Tue, 10/11/2011 - 20:51 | 1763708 chump666
chump666's picture

Yeah but Gross is betting on a USD sharp sell off.  He and BofA-Merril Lynch are spouting the same sh*t

from wires re BofA:

"We believe the sharp increase in China CDS is a typical mispricing on misunderstanding of China's fundamentals," says Bank of America - Merrill Lynch. The house believes the world is still at some distance from a full-blown crisis, but China-related markets have more or less been in a crisis mode, with the Chinese government defending itself against a fall in the CNY rather than a rise. BofA-ML says China bears are forecasting significant CNY-USD depreciation, and they warn that an ensued capital flight could lead to a collapse in China; although not many investors really believe these extreme views, the volatile markets seem to be quite receptive"

Total dumb asses , I hope PIMCO and BofA lose a sh*t load

Tue, 10/11/2011 - 21:17 | 1763794 o2sd
o2sd's picture

The yield curve is like a pregnant woman, and the the baby is at 7 years. May as well chase yield where The Bernanke tells you.

Bill has capitulated: the long bond has pancaked, and Gross is betting that the short end is about to be stomped also.

As other posters have noted, this can only come about through a massive refi/Prime MBS purchasing program announced when the prime mortgage market goes into death spiral.


Tue, 10/11/2011 - 21:19 | 1763806 Trimmed Hedge
Trimmed Hedge's picture

The more puzzling question is:


Why does Bill Gross have such a high feminine voice?

Tue, 10/11/2011 - 21:59 | 1764001 scattergun
scattergun's picture

Low testosterone?

Tue, 10/11/2011 - 22:00 | 1764002 scattergun
scattergun's picture


Tue, 10/11/2011 - 21:57 | 1763993 Nate H
Nate H's picture

couldnt he just be positioned for deflationary depression? (ie it doesnt HAVE to be FED tip, related, etc)

Tue, 10/11/2011 - 22:28 | 1764115 taketheredpill
taketheredpill's picture

I thought Net Debt Payments as % GDP has to be over 3% and pushing 4% before any Gov runs into risk of fleeing investors which would limit further Operation Twists at some point since any drop in yields would be negated by selling pressure.

I haven't looked for a long time but I didn't think US was near that threshold, so more twisting can be done.

QE2 only pumped up Neiman Marcus sales but hurt Walmart with effective "gas tax" courtesy of spec driven commodity rally.  If plan is more QE to keep official inflation data high doesnt really work since it depresses growth/sales and only leads to further price drops.

Not sure when it happens but if/when Fed runs through Plan A, B, C etc and inflation numbers get too low or too fast then they will blow the ballast (Das Boot!) via the currency.

Meantime still like long Treasuries on basis of second leg down in economy/housing and flight to safety (while it lasts) of dollar.



Tue, 10/11/2011 - 23:19 | 1764293 Atlantis Consigliore
Atlantis Consigliore's picture

like Pualson like Gross like Cramer, and the m BS news;


all a fade.....  sell bonds for the inflation ride of the century;


bye bye euro and EU,   999 tax and a huge kick in pants to 

Keynes,  the FEd reserve mandate on full employment rescinded


go go go go go...

Tue, 10/11/2011 - 23:28 | 1764316 crumbum89
crumbum89's picture

Why does anyone care what Bill is doing after his last big position to be short Long term Tresuries just before they sky rocketed!?!?! He was totally betting on inflation to drive rates up and then rates collapsed. I think I will fade him again.

Tue, 10/11/2011 - 23:28 | 1764320 crumbum89
crumbum89's picture

I'm long cash!

Wed, 10/12/2011 - 00:43 | 1764496 vast-dom
vast-dom's picture

Fuck me he should revisit his short bond position! Though his current bet is sound, if the keyword "bet" is ever sound.........the China leverage trade war article holds interesting insight into how all of this develops....will certainly be interesting how the game planet swings....

Wed, 10/12/2011 - 03:13 | 1764704 supermaxedout
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