Pimco Borrows A Record $88 Billion To Bet On Fed's Upcoming MBS Monetization
Regular readers of Zero Hedge know that in recent months tracking the portfolio and thoughts of one Bill Gross via the holdings of his flagship Total Return Fund (which just jumped by $6 billion in the past month and is just shy of its all time record north of $250 billion) has meant one thing and one thing only: betting on the Fed monetizing Mortgage Backed Securities or bust. Well, in January he just took it to a whole new level. The fund has now borrowed a record $88 billion, or -35% of its AUM, in cash (shows how much he thinks of the dollar) and used the proceeds (together with dumping European sovereign bonds from 18% to 11% of AUM) to bet on MBS which now stood at a whopping 50% of the entire portfolio - the highest since July 2009 when QE1 was in full force. However, in absolute dollar terms, due to the growth of the fund's AUM, the actual bet on MBS has never been bigger, and at $125 billion, represents the biggest notional bet ever made by PIMCO. Treasury holdings of just over $100 billion with an effective duration of 6.33 complete the epic bet that the fund has now put on QE3.
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looks like a sure thing
QE3 is a sure thing; and bailing out the banksters is a sure thing; ergo, betting that the Fed will buy toxic MBS is a sure thing. It's a virtual certainty.
Obama's ploy today solidifies the scheme to brush EVERYTHING under the rug, and the Fed is the rug.
Now the Fed begins to buy MBS from the banks at a time when they still have (perceived) value, because they won't when 20 million forclosures hit the market.
yep...artificial bond floor
Lennon Hendrix said:
Actually, the Fed is both the rug and the vacuum cleaner. The only thing missing is the dirt ... oh wait ...
Just imagine the day when the Fed fails to monetize and all these leveraged bond funds blow up their "safe money" investors.
Until then buy DMO...still not too late.
Looks like the banks found their bagholder Mr Goss. No need for monetizing now is there?
Yes, and those 20 million foreclosures will put more borderline houses underwater thus generating more of the same. Deflation for the housing and real estate markets and inflation for the pm's, food, and fuel.
Also hitting this year will be many commercial real estate problems as loans come due and the appraised values will be far lower forcing the owners to either pony up more capital or walk.
and... property tax valuations... and then local governments will be forced to cut all of the fire and police personnel before any useless eaters in the ranks... and threaten to kill puppy dogs at the pound... etc.
CRE has been so fucking dead for so long I can't believe there is anything left to roll over... nothing but turds. It's no different than business credit... If I can't borrow from a bank at 5% and make any profit with my business, then I don't go into business... likewise, if I have to pay $X in rent every month and can't make any money with my business, then I don't go into business or I close shop... no demand for loans, no demand for CRE from anyone with the wherewithal to repay or otherwise live up to the bargain.
5 10s 30's really took it on the nose today.. seinding ES into low.. though AH thye are bouncing a bit
ES off highs just like yesterday http://hedge.ly/zBI375
nothing like borrowing against the profits you will make on the insider info from the very source of the insider deal -- talk about some perverted full circlular shit!
One more step would be required: a promisory cut of the profits to the source of both the insider info and the loan. Now that's what I call a beautiful public/private partnership !
As they walk off across the wet runway into the misty night: "Benny, I think this is the beginning of a beautiful friendship!"
Not observed you in the past,,,But, vast-dom you are someone that gets it...!!! Welcome aboard!!
thx kill....i've been defiling these here 0H threads for nearly a year now, and what a godamn amazing year it's been! :)
If he's right, could be another Corzine.
only the promise of qe is a sure thing...lay off the hopium, there is no qe3 anywhere in the near future.........
Kito if you still believe that what happens to rates on the long end of the curve once they are done buying every single 30yr via twist?
ben can purchase without expanding their balance sheet. there are enough scared gazelles running from europe into timmys corner looking to purchase uncle sams debt...........keep clicking your heels dorothy, it wont get you to kansas........
Ben still has one trick up his sleeve to use to push thru QE3: the BTU value of printed dollars (12.44 BTU). Dollars can substitute for oil in many cases if they are printed in sufficient quantities and boilers are retro-fitted.
Hate to quote the click whore BI, but Europe is WWWWWWWWWAAAAAAYYYY ahead of us
http://www.businessinsider.com/hungary-money-burning-2012-2
You say he can purchase without expanding...how? By selling short dated paper?
Not hard to unload u.s. paper in secondary market. Plenty of crony banks to grab it. No qe3 for you!!!
Kito they don't need to call it QE and they don't need to show it on their balance sheet. I believe you are buying metals and you know this.
fonz have you been snooping around my faux dirty laundry basket with the secret pm compartment???????
will it be good for gold??
Kito deep down you are wearing a tin hat and stocking bottled water like the rest of us.
Nothing is for certain. With the DOW approaching 13,000 how will FED gather the political support to buy more MBS? I would guess we would need to see some bad data (unemployment and housing) in the next month to justify more QE. Tough to gloat about a great recovery with ZIRP thru 2014. It doesn't align. If you like silver, now probably the time to start or add to your position, assuming QE does happen.
Hey knows that QE3 is on it's way big time.
Just like Corzine betting the farm on PIIGS debt. What could go wrong??
Rule I learned the hard way years ago. When something is a sure thing, it ain't.
Gross is strecthing this a little too much. As things unravel, Bill Gross will become a stuff of legends. Its just that whterher he will the smart guy or the fool.
So if pimco is betting the farm on this one, can we expect a 1 trillion plus number of QE?
Tyler has outlined how and why the Fed's book needs to match the ECB's, and the ECB said today they would up their's to $7 trillion, essentially doubling it, which means the Fed has to follow suit and double down.
It may not all be put on QE X, but the Fed will, through POMO/OT2/etc double their balance sheet.
Now they don't need to monetize.
+1
Now that Gross bought all the MBS, the Fed doesn't need to.
Kill dollar, dollar kill, kill dollar, dollar kill. Dollar down, down dollar, dollar down. Equities up, up equities, equities up.
Btw, the German word 'groß' means big/large.
Are these the same mortgage backed securities that should lose value as this refinancing program takes shape?
Re-fi pays off the previous mortgage in full. These guys own the mortgages at distressed prices, 50-60 cents on the dollar. It's the mortgage REITs (like NLY) that take a hit, as they hold many originally purchased at premium
Forgive my ignorance; what financial product(s) is he using to facilitate his Fed MBS bet?
Cash; some he had and some he got when he liquidated his euro bond exposure.
Managed account cash...the client piggy bank.
I understand he's using client money, but I mean; is he going out there and buying MBS's himself in the hope that the Fed steps in @ a later days and also buys MBS's in the form of QE3? Or is there a more complex strategy?
Makes me want to switch my wife's 401K to the PIMCO Total Return Fund or that Spartan Bond Index fund which is also filled with MBS garbage. Should I go for it? I won't hold you liable for my final decision as I will do my own research. ;)
All the signs right now point to a huge bailout of MBS. More US$ fiat is about to pour into that sink hole than ever went in a single direction at any time in the history of the earth.
This is going to be way beyond epic. Who the hell knows how it will turn out. But most people in this business seem to say the same thing; follow the money.
They are just filling a bottomless pit. Good luck.
It's a big part of the Fed's exit strategy.
"Should I go for it? I won't hold you liable for my final decision as I will do my own research."
I don't think it matters at this point, but from a purely digitized fiat & technical standpoint I'd wait on PTTRX.
Speaking of junk, I've had the good fortune with one in my 401k (NEHYX) that is junk. I don't hold anything long, well, anyways...lol. My strategy is to watch for one to take a hit (with fundamental merit or not), stabilize and start going back up, be mindful of the deadcat bounce.
I've found this useful lately...
http://stockcharts.com/h-sc/ui?s=PTTRX
at the bottom of the chart you will see Annotate (Flash). This brings a screen where you can throw up a fibonacci scale (across the top of the pop up screen) on the most recent crash victim you have the ability to choose from within your wifes 401k.
Be mindful always, you are playing in their casino, with her money ;-)
Good luck.
You realize trying to forecast returns on PTTRX by one chart is beyond stupid. Their portfolio changed quite dramatically over the course of the time frame you are looking at.
Going into the summer PTTRX was in riskier bonds (reaching for yield) and no treasuries. That's why they went down over the summer. The market got all hot and bothered in its flight to quality.
Now Gross is taking duration risk and MBS. The question to ask if buying PTTRX is: do you believe interest rates will remain low (um is that a question)? Do you think more QE is in store? Do you not want any sovreign exposure?
The reason the fund has been kicking ass this year is the feds zero interest for evva stance. I'm sure we'll see more QE sooner or later the fed doesn't know how to leave well enough alone.
"You realize trying to forecast returns on PTTRX by one chart is beyond stupid. Their portfolio changed quite dramatically over the course of the time frame you are looking at."
Yes, I realize this has nothing to do with economic fundamentals or the "quality of their portfolio"...such as it is.
I never said it was. You need to read more carefully.
What I clearly said, is if I'm going to risk my fiat capital (my saved earnings from my labor) in that warped venue, its not going to be from the top of any chart...it'll be from the lower end of it and I won't be holding "long".
I hope I made myself clear this time ;-)
I think you aren't paying attention here. It is an actively managed portfolio. The price is set by the underling value of the assets, not a bid/ask like a stock. The assets in July are not the same as the assets in September, ergo what goes down does not need to go up. It did go up because Gross changed from a losing to a winning asset allocation, but you can't deciper this from technical analysis.
This should make sense, but it's not as pretty and shiny as reading a chart so you probably aren't interested.
I gave you an up arrow just to even it out.
You still don't get it. I don't care about "investing" as it's always been known. What I care about is increasing the digits in an account which doesn't allow me to "invest" in what I want.
I have zero interest in placing those digits at risk, walking away and forgetting about them because they're in an "actively managed portfolio" run by "professionals" or on some Bernanke pledge to keep interest rates at insane levels.
In short...I don't care what paper is in Total Return...I don't have any of my assets in there and I still wouldn't touch it with a ten foot pole.
You really need to grow up dude, the day's of fire it and forget it portfolio management died in the 90's, rotted out in the sun a little bit and was finally buried in 2008 when bond holders and stock holders alike saw years of savings evaporate thinking they may not even be able to "cash out" half of their losses if they wanted.
Why, what if the banks crash?...lol.
I wasn't one of them.
Do what you want...opinions are just like assholes, everybody has one. And I'm starting to suspect you have more than just a casual interest in Billy Boy's funds ;-)
You SHOULD be working... on better research before you comment. The Pimco Flagship is up 2.29% YTD...hardly what I would call "kicking ass". There are other intermediate term bond funds that have been kicking ITS ass. Dan Fuss is up 3.84% and with, I might add, way less "derivative magic" happening in the portfolio.(actually, something happening across all of the Pimco funds and does not at all inspire a feeling of safety) Lastly, to see this size wager being put on makes my brain scream "liquidate!!" as visions of Bruce Berkowitz portfolio performance of 2011 crossed with Harvard's endowment performance during the financial crisis ringing in my brain.
Excuse my ingorance too................If the Fed does this QE3 in buying MBS, does this mean that stocks are going higher like QE 2 and QE2? Would this not send bonds higher, and shut off the fuel to keep the market up here in the ozone with appl???
The reason the Fed buys bonds is to keep their demand high, to keep rates high. High demand and low supply squeeze price. Higher price lowers yield. So if you want to trade bonds, it is a very lquid market.
It increases stock prices by proxie, because it forces people to chase growth.
I think it depends on the size of QE3. Too much might be just as bad as too little. The $7T being thrown around would see a blowoff top and then an unbelievable crash as they sell the overvalued crap to the sovereigns and pension funds who would scramble for return. Gotta get back some of the haircuts being handed out in the credit markets by hyperinflating equities.
re: AAPL
How can a stock selling at 15 PE be considered 'in the ozone'?
So, with rising employment #'s, low inflation (except for oil) and a slowly improving economy making QE3 less and less likely, I'm not sure I'd be taking that bet with Bill.
Employment is not rising, inflation is high, and the economy is not growing, but if you are asking how QE X is possible, well, it will need a flash point, won't it?
yeah, a flashpoint. Like the banking sewers getting plugged up with too much bad paper.....that's a flashpoint. They is gettin out the plunger. The shit is starting to stink up the place bad. And FAS 157 can't create real fiat....a real problem. Who could have known ?
Bill Gross was short treasuries last spring, lest we forget.
Bill Gross sucks at trading. Agreed.
That's what I was just thinking. His crystal ball may be wearing out--Gross' plays don't seem like a sure thing by any stretch.
indeed, plus Gross has been shooting his mouth off with some not so friendly to the FED speak lately. He may not be part of the insider gang anymore.
PIMCO = ?
electoral votes
DMO would benefit greatly from ANY QE!!! Aside of the overal market and "ZE" financials!!
A little help from some mortgage traders please?
Today we have a (pretty) big deal from the banks on mortgages. They will contribute $17b to facilitate write downs of mortgages. As a result there will be mortgage pre-pays (refi's) in significant quantity.
There is an open question what will happen with Fannie and Freddie. I am convinced that they too will be forced to re-write their mortgages. There will be little principal reduction, but there will be a refi at lower rates. The talk is of 10mm mortgages. That is very big pre-pay action.
Finally, we have FHA. Not clear what happens here, but the Prez has legislation coming that would open the door for low interest refi's of FHA loans. More of the damn pre-pays here.
Now my dumb question, "When pre-pays accelerate, is it "long and wrong" on LT duration mortgages?
Ah.. I think it is...
bk
My assumption here is the same. As the mortgages are pre paid the MBS lose value. However if the Fed will be buying them QE style I would think the only reason Gross did this was so that he could be the one to sell to the fed when they announce the program. Just like the bond shops frontran QE buy buying treasuries ahead of time.
THe bank settlement deal has nothing to do with agency MBS. President refi plan for agency MBS would increase refi efficiency which would decrease the value of most premium agency MBS. Too much bullshit floating around how this in unfair to investors but the fact is that the rules were changed on the borrowers (who paid for the option to refi) which was a wealth transfer to the bondholders. A refi plan that allows agency MBS borrowers a more streamline process levels the playing field. It is NOT auto-refi as some have claimed. As I have ssid many times before, holders of premium MBS have benefitted from the decline in home prices and tightening underwriting standards from the GSE's but they have none of the credit risk. All that risk already is owned by the taxpayers. With short term rates so low, a moderate increase in prepayment rates would not have a material impact on premium MBS, They may just go down in price to where they were this time last year.
As far as its impact on mtg rates to consumer, it will not be terribly meaningful. Perhaps 10 bp due to increased supply and option costs to bond holders but rates to borrowers are already at record highs vs secondary market rates banks are making a fortune. Say no to agency principal reductions and non-agency to agency refi schemes but not to allow streamline refi's to ALL borrowers is just a attempt to protect the agency portfolios, reits and hedge funds
THe bank settlement deal has nothing to do with agency MBS. President refi plan for agency MBS would increase refi efficiency which would decrease the value of most premium agency MBS. Too much bullshit floating around how this in unfair to investors but the fact is that the rules were changed on the borrowers (who paid for the option to refi) which was a wealth transfer to the bondholders. A refi plan that allows agency MBS borrowers a more streamline process levels the playing field. It is NOT auto-refi as some have claimed. As I have ssid many times before, holders of premium MBS have benefitted from the decline in home prices and tightening underwriting standards from the GSE's but they have none of the credit risk. All that risk already is owned by the taxpayers. With short term rates so low, a moderate increase in prepayment rates would not have a material impact on premium MBS, They may just go down in price to where they were this time last year.
As far as its impact on mtg rates to consumer, it will not be terribly meaningful. Perhaps 10 bp due to increased supply and option costs to bond holders but rates to borrowers are already at record highs vs secondary market rates banks are making a fortune. Say no to agency principal reductions and non-agency to agency refi schemes but not to allow streamline refi's to ALL borrowers is just a attempt to protect the agency portfolios, reits and hedge funds
Bill Gross has been wrong before.
http://money.cnn.com/2011/08/30/markets/bondcenter/bonds_pimco_bill_gross/index.htm
Is it financed @ 15%? [ LIGHTSQUARED] Please listen to Mr. Krasting before you all become "PRO" bond traders.
Bruce if you are still on here....If the fed commits their purchases to MBS who picks up the slack for them when they stop buying 91% of the 30yr in June? How do they stop the inevitable "price discovery" from taking rates much higher? Market crash? Thats my guess. Whats yours?
Ok so the CME lowered margins on gold and Pimco is levering up for qe3. Gold is going much much higher.
+1
The CME has just announced initial and maintenance margin cuts for silver (13%), gold (12%), platinum and copper!
I'm seeing gas prices skying and taking out everything including gold down to 1250ish this spring.
Chicken Little.
Anyone can venture a guess about anything.
I guess I'll have a cookie.
Since when are you a commodities trader? I'm nick naming you Mr. Headline.<>
If your asking me, I'm not claiming to run a hedge fund or trade in size but back when it was Lind Waldock they did use to send me one ounce silvers for the holidays Unlike your boy above I can only "guess" what's going to happen though, and yea golds going to 1250ish before $2500.
Tatar Tots, My friend! I agree. Wecome to the club of " Ponzi: Dead cat bounce!!!!
...and night will come before day will become night will become day.....
You're restating w/out a timeline.
Still by Spring? This year? 1250 for AU?
Wanna make a side bet?
I'm not locked in to 1250, I wouldn't be surprized if 1300 was the low end. I'm pretty sure I said this spring no? So you want me to pick the time and price ok sure lets bet against your time and price.. what say you ?
Gross is being set up for a HUGE FALL by the PTB. Maybe they even whispered to him that Ben would be buying MBS, then... he doesn't.
I don't know. It has been a goal for the bankers and the Obama administration to inflate the housing bubble, again. I do believe QE3 will be the FED buying toxic MPS from the insolvent banks. Obama is only worried about winning the election. By doing this, it is no way the smart of logical thing to do, but this would actually make things seem peachy for definitely a year, though no more than 3 years.
Buying MBS is not going to stabolize the housing market, it's going to stabolize the bond market. The difference will be akin to paper gold vs. gold bullion.
Out of curiousity, how would buying MPB going to stabolize the BOND market.
MPB?
Monthly Playboy?
MBS*
Jackass lol
MBS are traded as bonds.