Bill Gross

Earlier this morning, strategically timed just in advance of the Chairman's tacit admission that everything attempted to date has once again failed to stimulate the economy as now both housing and soon employment have resume their drop, New York Fed released a note titled "Prospects for the U.S. Labor Market" which in not so many words explains why there are none. While the analysis is the same that has been presented here over and over, confirming that the jobs recovery has been anything but, and thus setting the stage for today's Bernanke preannouncement to either a March NFP miss or more QE at the April FOMC meeting as Bill Gross tweeted yesterday, it has one chart that shows why when it comes to restoring a virtuous cycle this time is different, and why endless central planning may have finally broken traditional economic assumptions. The chart below is perhaps the only one worth noting. Spot the odd "recovery" out.

Curious why futures and PMs both soared out of the gate at 8am? Look no further than the Chairman of the Federal CTRL-Preserve who is speaking at the National Association for Business Economics and just made a very strong hint that the New QE (or is that the NEWER QE) is coming. And there are those mocking Bill Gross for saying the April FOMC would lead to the next QE announcement (something we expounded on extensively yesterday). And here is the most idiotic statement uttered by the Fed: "If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited.  Even if that proves to be the case, however, we should not conclude that nothing can be done." Recall what JPM said about central planning breaking the virtuous cycle just two days ago. The Fed has just admitted it... but it does not mean that the Fed will be forced to print print print infinitely more. After all, it's all there is.

All you need to read and more.

Next week will be relatively light in economic reporting, and with no HFT exchange IPOs on deck, and the VVIX hardly large enough to warrant a TVIX type collapse, it may be downright boring. The one thing that will provide excitement is whether or not the US economic decline in March following modestly stronger than expected January and February courtesy of a record warm winter, will accelerate in order to set the stage for the April FOMC meeting in which Bill Gross, quite pregnant with a record amount of MBS, now believes the first QE hint will come. Naturally this can not happen unless the market drops first, but the market will only spike on every drop interpreting it for more QE hints, and so on in a senseless Catch 22 until the FRBNY is forced to crash the market with gusto to unleash the NEW qeasing (remember - the Fed is now officially losing the race to debase). For those looking for a more detailed preview of next week's events, Goldman provides a handy primer.

There is a good reason why we need not encourage Arianna Huffington to believe she is an important thinker of our time. I believe ridicule is a good way to inform her of that.

The Fed may be using the WSJ to spread rumors of sterilized QE, but Bill Gross ain't buying. According ot the latest update from the world's largest bond fund, the firm lowered its holdings of cash and synthetic Treasury exposure to 38% of total from 41% (even as AUM increased from $250.5 billion to $251.8 billion), while hiking MBS to 52% of AUM: not the highest relative exposure ever, but at $131 billion in Mortgage Backed Debt, certainly the highest in absolute terms. Margin cash declined slightly from $87.7 to $78.1 billion, but one thing that appears to have increased even more is Gross' conviction that QE 3, or to borrow a recent euphemism, THE NEW QE, is coming and it will be all about mortgage backed debt. Of secondary note is that after extending the effective duration of its holdings to an all time high 7.58 years in October 2011, the fund has rapidly cut duration and was at 5.68 at last check as holding in the 1-3 year bucket saw a substantial jump: indicating the ramp up in short duration MBS paper.

In what should come as a surprise to nobody, German banks have announced that they will accept the terms of the Greek PSI whose outcome is due on Thursday. Because as Reuters points out, German banks already have had the time and opportunity to park the bulk of their Greek exposure with the failed German bad bank, which is explicitly funded by the government (thus making the cost to the German government even higher): "While Greek sovereign debt owned by German lenders has a face value of roughly 15 billion euros ($20 billion), in most cases they have already written down that value in their books by about three quarters. FMS Wertmanagement, the biggest creditor with an exposure of nominally more than 8 billion euros, will accept the deal, a person close to the lender said on Monday. FMS, the bad bank set up to hold the toxic assets of bailed-out former bluechip lender Hypo Real Estate, is to formally decide on accepting the debt cut later this week, the person said." German banks... German banks... where else have we seen this today? Oh yes: "Die Welt said that more than half of the 800 lenders that tapped the ECB's 3Y LTRO last week were German, consisting mainly of small savings and cooperative banks." Thank you Jim Reid - so while Bundebank's Jens Weidmann huffs and puffs about the LTRO, it is his own banks are the biggest beneficiaries, in no small part to hedge against Greek exposure. But yes - at least following the absorption of tens of billions in intermediary capital via a variety of channels, German banks can now accept a 70%+ haircut, even if they continue to complain about it in the process: "Commerzbank, which had originally invested almost 3 billion euros in Greek sovereign bonds but has written down its exposure to 800 million, said last month it had little choice but to take part in the bond swap. At the time, chief executive Martin Blessing said: "The voluntariness (of the Greek debt swap) is about as voluntary as a confession at a Spanish inquisition trial."" The Spanish Inquisition appears to have won yet again.

Bill Gross' monthly letters are always a fresh source of jovial imagery, although the bond king may have outdone himself in his latest monthly letter which collapses the principles of investing onto the football field: "My point about pigskin offense and defense is the perfect metaphor for the world of investing as well. Offensively minded risk takers in the markets have historically been the ones who have dominated the headlines and won the hearts of that beautiful gal (or handsome guy).... Canton, however, has an approximately equal number of defensive in addition to offensively positioned inductees, so there must be a universally acknowledged role for both sides of the scrimmage line. What fan can forget Mean Joe Greene, Deion Sanders or Mike Ditka? The old, now politically incorrect showtune laments that “you gotta be a football hero, to fall in love with a beautiful girl,” but football and any of life’s heroes can play on either side of the line, it seems." And it only gets better. While at its heart Gross' latest is merely yet another lamentation against the confines of the financially suppressive regime that arises from ZIRP and ends with what many expect is a whimper (when in reality they all forget to factor in the facility of hitting the CTRL+P keys as many times as necessary), the flourish of abandon this time around is palpable. We would not be surprised to soon see Gross hang up his offensive (and defensive) jersey, and sit back and enjoy the coming lunacy from a distance (but hopefully not before he allocates just a little to the Ron Paul SuperPAC).

While this week's two previous auctions were uneventful and very much unimpressive, today's 7 Year $29 billion issue continues to show that the bulk of the curve action continues to be at the belly. Unlike January's spotty 7 Year auction which saw a massive 56.64% in Primary Dealer take down, today's was the opposite, with the auction pricing a whopping 3 bps inside of the When Issued at 1.418%, with Dealers taking down just 38.89%, well below the TTM average 47.46%. This was the lowest Dealer take down since December 2010.  The Indirect Bid was well higher than in January when as we already noted previously foreign investors were dumping US paper, yet at 41.85% was just in line with the TTM average of 41.54%. The big outlier however was the Direct Bid take down which soared from 11.59% to a massive 19.27% take down - a low 44% hit rate on the Direct Bid. Why the huge shift in sentiment toward US paper? It hardly has anything to do with the yield rising from a meager 1.36% to a just barely higher 1.42%. And yet, there was a tangible change in Direct interest - is it merely PIMCO buying up more paper? Most likely - this is perfectly aligned with the fund's recent average effective duration so we would not be surprised if Bill Gross is now loading up on the belly. The result of the super strong auction is the entire treasury curve sliding in yield, as it indicates that the wholesale expectation of a shift away from Treasurys and pushing into stocks, is nowhere to be seen. And stepping back from the tree, the forest now stands at just under 101.5% debt/to US GDP. Many more auctions coming.

While it has been well-documented by now, that even as the campaign of Mitt Romney continues to be funded exclusively by Wall Street legacy firms, that of Ron Paul is largely in the hands of the US military. Yet when it comes to the recently infamous SuperPAC, things have changed. Because as Politico reports, of the roughly $3.4 million total in cash raised by the pro-Paul group Endorse Liberty since its founding on December 20, none other than PayPal cofounder and Clarium Capital chief Peter Thiel has donated $2.6 million. So as the renegade financier, whose opinion on Ben Bernanke and the gold standard is well-known to Zero Hedge regulars emerges as a primary backer of all that is wrong with the status quo, and the Ben Bernanke way of monetary suicide, we wonder who is next? Actually, scratch that: Bill Gross has already made his opinion well known vis-a-vis Ron Paul's candidacy. Isn't it about time the Newport Beach multibillionaire reached into his back pocket and put his money where his mouth is, especially following his tongue in cheek endorsement of Ron Paul for president?

A lesson to be learnt from the individuals who continue to buy European Debt

While much of the focus has been on Paulson & Co., the hedge fund founded by billionaire John Paulson, cutting its stake in the SPDR Gold Trust by 15% in the fourth quarter, possibly of more importance is the fact that PIMCO, the Texas Teacher Retirement System and George Soros all increased their holdings of the biggest exchange-traded product backed by gold. Paulson cut his gold ETF bullion holdings by about 600 million dollars in Q4, a reduction that was likely driven by client redemption needs as he and his fund remain upbeat on gold – primarily due to inflation concerns.  Paulson’s reduction in SPDR was offset by other important buyers such as PIMCO, which oversees $1.36 trillion and is home to the world's biggest bond fund and significant institutional buying from the likes of the Texas Teacher Retirement System and billionaire investor George Soros. ‘Bond King’, Bill Gross recently wrote about gold as a “store of value” and PIMCO’s allocation to GLD may be ongoing as they seek to diversify their portfolios and hedge against inflation. Soros, who once suggested gold was or would be "the ultimate asset bubble," raised his stake in the SPDR Gold Trust (GLD), a gold-backed exchanged-traded fund, to 85,450 shares, up from 48,350 shares in the period. Soros, who had disclosed call and put options on the gold fund in the prior period, reported no such investments in the fourth quarter. Soros’ GLD position is worth a mere $13 million, however it suggests that he is not as bearish on gold as portrayed and that he sees further upside for gold.

While the star of multibillionaire Bill Gross may or may not be fading (the jury is still out on what the final outcome will be for the man who so far alone among his peers has dared to point out the lunacy in the Fed's actions), that of his far smaller and nimbler peer Jeff Gundlach of DoubleLine Capital has been rising rapidly, and at last check has his fund's AUMs at over $25 billion, a doubling in a few short months. Gundlach is conducting his periodic webcast live at 4:15pm Eastern (i.e., now) at the link below. Anyone can join in. And by the title of the presentaiton, it promises to be quite interesting. Click on the following Link for webcast or the image below.

The defining soundbite from the call Q&A: Regarding Bank of America - "It is wise to avoid banks. Not surprised BAC has gone up - just like NFLX - just like Italian bonds. Reduce risk right now, including, Bank of America."

Is a bonus culture beneficial to the economy?