Pimco Doubles Down On All In Bet Fed Will Monetize MBS

Tyler Durden's picture

When back in December we observed that Pimco's Total Return Fund (which contrary to rumors actually closed the year at $244 billion, or $4 billion more than in the beginning) had a $60 billion margin "cash" position, the proceeds of which were used to purchase a near record $103 billion in Mortgage Backed Securities we thought this is about as far as Bill Gross would go betting the ranch on QE3, and specifically that kind of QE3 that assumes at least a big portion is used to buys MBS (the same instrument that SocGen believes, along with gold, will benefit the most from an imminent QE3 announcement). It turns out we were wrong, and in December the fund doubled down on its QE3 all in bet, by "borrowing" even more cash, or a record $78 billion, using the proceeds to buy even more MBS, as well as Treasurys, which hit a combined 31% of the TRF's holdings. In other words, between MBS and USTs, Pimco holds a whopping 79% of total, mostly in very long duration exposure. In fact, this combination of long duration and pre-QE exposure has not been seen at PIMCO since late 2008, early 2009, meaning that as many banks have been suggesting, Gross is convinced that the Fed will announce if not outright QE3 this January, then at least intimate it is coming.

Yet while Gross timed the advent of QE2 perfectly as well, when he bought up USTs in the summer of 2010 ahead of the August announcement of the second easing, he did mistime the latest build up in MBS in late 2010, which did not benefit from a transition of QE2 into a MBS-focused program. Needless to say, PIMCO was net short treasurys starting in March 2011, just as the security was about to become one of the best performing asset classes paradoxically ahead of the US downgrade. Yet something tells us this time Gross is correct. The only question is whether, as SocGen believes, the QE3 hint will come at the January 25 FOMC meeting or the subsequent one. And since NFP will have to be a rather big disappointment ahead of a major re-monetization episode, it just may be that the formal announcement will be delayed by a few weeks.

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non_anon's picture

pfffft, no shit

Deep's picture

Man you guys have been pushing QE3, for what almost a year. You guys sound like the wall st. idiots. Will not come til late fall or early 2013

jomama's picture

when an institution runs up debt like the US does:  ~3.6billion a day, or ~ 2.5million a minute, monetization is the only way out.

the only reason the collapse hasn't come and gone is because the global economy made the mistake (was forced into) following the very same model.

in the end, monetization will be the only way out.

AldousHuxley's picture

monetization is not the only way out.


the alternative is deflation and debt reduction by punishing bond holders via bankruptcy. Banksters will be wiped out, but a country with plenty of natural resources will survive in the long run. That's exactly why banksters have bain cap's Romney lined up in case Obama fails to prop them up. Banksters don't care as  long as they get that 6-7 figure bonus in the short run. It is your children and your grandchildren who will have to pay in the long run.



Harlequin001's picture

There are far too many players in this 'market' that are capable of moving it. If gross positions the trf for this or that outcome, what is Bernanke going to do about it? Bust him? Wipe out his funds, cause an instant pension funding black hole that will crush stock markets? No chance. Gross will have is way because the only thing that can stop it is gold backing. Simple as that.

and he knows it...

TheSilverJournal's picture

Bernanke needs Gross and other big players to front run QE3 and buy MBS and Treasuries, so Bernanke's happy.

A nice QE3 might push silver towards $150 in six months, so I might as well front run the trade too.


blindfaith's picture

the machine has 10,000 tiny and 50,000 large moving parts, yet some how a MAN thinks that if I just take this one piece out, the machine will keep running. 

The question is, which piece if taken out makes the machine stop running altogether.

blindfaith's picture

you assume that 'someone' actually cares if the grandkids have to pay.  IF that was the case WE would not be where we are right now.

We all say we CARE, the truth is we hope that we get out with our skin and the hell with everyone else's skin...including your grandkids.  If you think the 0.001% who do care can stop it, I suggest that you stay away from train tracks.

IN GOD WE TRUST is a joke put on the dollar a scant few years ago to remind the common man everything will be just fine and dandy....not to worry.

I am not so sure that the FED boys will forget the tongue lashing Mr. Bill gave out over the last 12 months...especially to the head cashier.  Someone must go down, why not Bill he is no friend.

Random_Robert's picture

"It is your children and your grandchildren who will have to pay in the long run."

- Why is that, exactly?

The debt was dropped on us by our parents. We'll multiply it and dump it on our kids, and they will multiply it and dump it onto their kids, and it will go on until unlimited issuance of new debt is required to manage the unlimited service costs on the unlimited existing debt....

On that day (financial singularity) all money will become worthless, all material valuations will revert to their sentimental (personal) mean trendlines, and we will move into the wonderful future that Star Trek promised us...

Gold pressed latinum, all you Sprott loving, Fed hating, Forengi bitchez...     


Campagnolo's picture

no, QE3 is coming before presindential election.

The Big Ching-aso's picture



The real question is whether it'll be QE3 Ben-Lube for Him & Her, or QE3 Ben-Lubeless for Him, Her, and the Horse we rode in on.  

AldousHuxley's picture

QE3 will be Bengay for your son.

Sudden Debt's picture

I've got 100 bucks riding on "Joly Jumper" in the 3rd race and 500 bucks on a horse called "Ponylegs" in the 4th. They both are going 300 to 1 so I'm in and readdy to Take a long vacation!

Snidley Whipsnae's picture

QE3 = Fed supply of fiat to bankers to purchase large blocks of MBS

Outcome? Big banks will own a large portion of US housing for pennies on the dollar.

Home ownership will be a quaint idea, dim memory for your grand kids...

Fucking bankers own everything and have forever rental income from future generations... Landed gentry vs serfs...

This is what the 'mortgage meltdown' was meant to accomplish.

tarsubil's picture

But what happens after my daughter goes all super s.a.s.s. -y and the bankers all take dirt naps?

tarsubil's picture

Wasn't the debt ceiling hike supposed to last until after the next election? What if, I know this is crazy but just humor me, what if all the great plans are by people who really are just morons after all?

AldousHuxley's picture

they just won't let Bank of America below $5.


QE3, MBS buying signaled by financial stocks sky rocketing last 3 weeks.


banksters are the insiders and bankster stock is going up.

Sudden Debt's picture

They all want to cash in on their glorieus 1 cent dividend so how can you blame them?
Money Money Money Bitchez!!

AldousHuxley's picture

pimco has lots of public pension funds. This is obama&Ben's method of choice for bailing out pension funds. Let them have inside deals.

Popo's picture

This interview gets funnier by the day:



Bernanke:  "One myth that's out there is that we're printing money.   We're not printing money"


Bernanke:  "We can raise rates in 15 minutes if we have to."


Interviewer:  "You have what degree of confidence in your ability to control this?"

Bernanke: "One hundred percent"



TheSilverJournal's picture

That's the central planner of our money right there. It's amazing that this crap is accepted.

Come on people, central planning of the money? How socialist is the US? Not only is there central planning of the money, but there's also central planning of housing..the largest single asset that most people own. 95% of newly issued mortgages are backed by government.

Then there's central planning of retirement with social security and what a joke that is. Straight stealing from the young and poor to give to the old and rich. 


AldousHuxley's picture


It is no secret.


The central bank is poised to buy about $200 billion this year, or more than 20 percent of new loans, as it reinvests debt that’s being paid off. Some Fed officials have said they may support additional purchases that Barclays Capital estimates could total as much as $750 billion.


Dudley’s comments and the Fed study signal a greater likelihood of QE3, according to Ajay Rajadhyaksha, a Barclays analyst in New York, who has estimated it could involve $500 billion to $750 billion of mortgage-bond purchases over a year.

“The investment community is almost regarding quantitative easing as a free good and if it’s a free good, why not just do QE10,000,” said Sanders, a former head of mortgage-bond research at Deutsche Bank AG. “If rates start going up, somebody’s going to have to pay the tab, and you know who that is: John Q. Public.

Betty Swallsack's picture

Wait a minute!  Isn't this the same Bill Gross of Pimco that was telling us all to do just the opposite not seven months ago?

 Pimco founder Bill Gross reiterated his warning to cash out of Treasuries Wednesday afternoon.



For investors hell bent on investing in debt, Gross says to look overseas.  "Treasuries are only half of the bond market," Gross said. "Look in countries where monetary policies are less repressive."



Famed investor Bill Gross, who runs the PIMCO Total Return Fund, recently sold all of the US Treasury bonds is his fund’s portfolio. It’s a huge move for the manager of the world’s largest bond fund. As recently as June 2010, Gross’ fund held nearly $150 billion in US bonds. That amount has now been slashed to zero.


Gross expresses surprise at the behavior of Treasuries given current market movements.  The bond king had been one of the loudest proponents of the investment hypothesis that the end of QE2 would find Treasury markets oversupplied and under demanded, leading to spiking yields and falling prices.  Instead, skyrocketing volatility and global instability, along with the perception that growth will be way lower than expected, have sent “the Fed and private investors” into bonds, Gross said.  Record low Treasuries means bond markets are discounting “a heap of trouble” and coming recessionary winds, expressed the PIMCO man.


Bill Gross has dumped all Treasuries from the world’s biggest mutual fund. Pacific Investment Management Co. said yesterday that Gross, who runs the $237 billion Pimco Total Return Fund, eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.


Meanwhile, In Greece, it is not Treasuries that are being dumped...

Children are being abandoned on Greece's streets by their poverty-stricken families who cannot afford to look after them any more.

Youngsters are being dumped by their parents who are struggling to make ends meet in what is fast becoming the most tragic human consequence of the Euro crisis.




NoClueSneaker's picture

... a right time for Albanians to claim northern Greece for themselves, and for the Turks to take couple of islands ...


whatsinaname's picture

No QE3 at crude = 100+ !!

kapitsch ?


Eireann go Brach's picture

There will be no QE3 in January, Bernanke cannot justify it right now.. The S&P needs to drop another 10-15% or Europe needs to explode!

you enjoy myself's picture

you'd think that, and every sane person thinks that too, but i'm becoming more convinced he's going to do it regardless of SPX 1300 and oil>100 and 8.5% UE.  he has no choice in his mind -- and he doesn't have to answer to anyone anyways, he doesn't have to justify anything.  that the market has correctly front-run QE3+ doesn't mean its no longer going to happen, it just means it'll be worth 100 SPX instead of 300 SPX.  Bernanke is aware that the market has decoupled from the economy, but that's a positive in his book.  he wants everyone to be in the casino.  how else can every pension fund in the US not implode? how else can we service our debt and fund the govt?   

the Fed seems to have spent a good amount of their prior minutes loudly proclaiming that inflation is muted, and even below their desired targets.  as long as they can convince everyone of that, and keep taking au/ag to the woodshed, there's nothing stopping them bloating their balance sheet by another trillion.


AldousHuxley's picture

inflation was muted on the year as a whole. It is almost as if Bernanke knew EU will have financial crisis deflation to offset US dollar printing. Bernanke will print again 2012-2013, when the next duck in line china+brazil will deflate and let Ben print some more US dollars to keep inflation in check.


Also if you inflate like crazy to prop up S&P500 to get the whole jobs thing going to help Obama's election, then all of sudden after the election in December you have sudden deflation, then for the year you will have the usual inflation figures averaged out. It is all about timing.


financial stocks already pricing in MBS bailouts.

tabasco71's picture

Well, given that the mainstream is all over China's hard landing lately, shortly everyone's 'export led recoveries' are suddenly going to start looking a bit less certain?

Fitch has hinted at a further Spanish downgrade to help things along...

Glasgow Gary's picture

This is Gross saying to the FED: now that I've bought it all up monetize me, and I'll keep it in inventory. Otherwise, I sell it all back into the market. 


fourchan's picture

its called the package deal.

gross should have just bought country wide.

AldousHuxley's picture

gross bought greenspan and kashikari. He didn't bring in Mozilo. sorry, no country wide.

The Swedish Chef's picture

One would think that one of the largest (the largest?) holders of US bonds would know when and/or if QE happens. Scratching eachothers backs and all...

NumNutt's picture

I say QE3 will happen some time around March/April, by then there will be complete panic with shituation in the EU comming to a head, and the China bullet train economy screaching to a hault. Thats when it will occure, just when Obama get's ready to start his big push for 2012....


Uh, QE never stopped.  10 year is below 2%.  They will formally announce it when the SHTF. 

Cadavre's picture

Dear Abbey,

Please `splain it to me!

What kind of MBS?

Ones that return principal and interest?

Principal Only?


Inverse Floaters?

Interest Only?


All the strips?

At a discount to par?

At a premium to par?

Everything in the prospectus?

All - some - one?

If gold goes up - then the dollar is going down and that usually means mortgages drown - a foreclosure pays back most if not all of the principal to the bond holder. Is that the game?

Why does Iceland immediately come to mind?

Who de FED buying deze MBS critters from?

How will the FED buy deze MBS? Who be holding dem now?

Will FNMA sell them to a primary and then the FED will buy them from the primary so da primary's broker can taste a juicy margin stand at taxpayer expense?

What's be the average life? What be the PSA?

Is the FED buying them at such a deep discount to their insured value?

Would the FED be isolating on specific regions?

Do they have a market value? What be da market to book?

There's a whole lot of ways to buy MBS and a whole zoo of pacs and collars and strips to pick from (TD - you got some double secret copies of the confirms?)

Is the FED "predictably" just looking for more excuses to counterfeit?

Can someone please explain why anyone would buy an MBS in this market?

I get it - the FED is betting Dr. Paul will be the next president, and a stong "Paul Dollar" will price the FED's newly acquired MBS at a premium - but Dr. Paul is going to pretty much going to geld the FED (if old Bennie has anything to clip - but dat be mighty doubtful fer sure) - DON"T SEE THE PLAY - UNLESS - the FED is holding a bunch of UST shorts.

IS PIMCO dumpung treasuries and buying rials - maybe dinars?

When can we start calling market manipulation: "MARKET MANIPULATION"?


Um diddity - bum diddity - oh what da FED do to me!

Max Fischer's picture



The XHB seems to think the Fed will monetize MBS's, too.  It's up over 50% since October.  Sorta strange how it suddenly reversed and rocketed out of nowhere in October.  Pimco started gobbling up MBS's back then, too.  Something surely was leaked.  

Didn't MathMan tell everyone to buy homebuilders?


Max Fischer, Civis Mundi

taraxias's picture

Okay, we get it, you are mathman.

We also get that you keep posting garbage trying to dress it up as financial wisdom.

Oh no, wait, mathman posting fantasy of a housing shortage is the same as pimco buying mbss. Got it, my bad, moving on......

Seasmoke's picture

Who owns the Note ...... No Mortgage Backed Security


Tsunami Wave's picture

In other meaningful worldwide news.. Boys II Men finally get a star on the Hollywood walk of fame:



Cadavre's picture

When will Hollywood finally begin to recognize real talent and give one to a group that really deserves it, like Milli Vanilli?

slewie the pi-rat's picture

pimpco is borrowing to buy MBS?  and the far end of the Ts?  b/c the FED is gonna "administer fiscal and banking policy" [my term] in these areas?  or something?  $78 B?

holy guacamole!  the things we do for love of ROI!

ZIRP is a BiCh, BiCheZ!  apparently the chairsatan and his pimped-0ut pimpco friends feel confident of returning your money as long as they get to use it for free.  not you.  them!

what amazes slewie is that people are standing in line to "invest" w/ them for zero return b/c they can "preserve capital" by doing so

systemic conditioning.  people have been conditioned to invest in a system that works so well for others that the investors need to be told full-time and in livid color that the system is broken and doesn't work at all!


and investing w/ them for zero return will help them make it better for you!

logically, someone of the stature of the marlboro man or the taryton fighter or just a plain joe camel might withdraw the investment-0la exclaiming, "I don't need you to break-even!" but, no, no, no... 

they stay invested for tax reasons

"OT"~~from this interview: Exclusive Interview – James Turk we have:

"... That’s why for example the Sprott Physical Silver Trust is trading at a 30% premium to the Comex price–the reason is everyone knows the Comex price is paper, and that there’s really physical silver in the Sprott Physical Trust. The PAGE exchange will probably have a similar type of impact…It will help make people understand there really are two different markets for gold–a paper market and a physical market.”

when i read this i thought:  when were we fringeBloggingTM about that

turns out it was 1.6.12 ["Physical Silver Surges To Record 30% Premium Over Spot, In Backwardation"].   nice, tyler...

Captain Kink's picture

Hey Slewie,

I don't understand why anyone would pay a 30% premium to own the Sprott when one can go out and actually buy it and take it home for a (max) 10% premium.  Can you help?  Unless they are doing it in tremendous size... Is that it?

slewie the pi-rat's picture

me either, C_Kink, but apparently they do

why?  b/c unlike certain other ways to 'invest in' silver without taking it home if you don't want to, the investor feels confident his silver is actually with sprott

also, it occurs to me that there may be a different tax treatment which ericSprott may have designed around to attract investors and to gain that 20%+ premium over what it would cost to buy and take home.  isn't phyzz US PM coinage treated more like collectibles than money, in direct contavention of the US Constitution?  and bullion,  which citizens can no longer take to the Mint and have minted into money?

some politician ought to suggest re-opening the Mint to citizens;  then, some "activist" judge throws out the whole tax code b/c it doesn't follow the Constituion on: what is "money and currency" for $1,000, please, alex?  america might be a more fun place again!

if people want to trade or are not huge on owning the silver themselves, but want to "invest" in real silver 1:1, not some paper based upon fractional reserve "10X issue of paper for every ounce" sprott appears to be offering them what they want, here, along w/ the running option to either cash out in bullion or FRNs, according to my lay understanding [w/out having read the prospectus or opened an account]

roy10's picture

Betting on QE3 is the same as shorting the market, since QE3 would only happen if there was a major meltdown in markets. Right now it seems far-fetched.

AldousHuxley's picture

QE3 is Obama's campaign tool.

fellatio is not fattening's picture

Will you please explain what YOU mean by monetizing MBS exactly, and if the Fes does as you suggest, what is the easiest way to benefit?  I understand monitizing but not what you're proposing.   Thanks much

zanza's picture

how does one purchase MBS as well?  any stocks or futures that do this?