He's back. A month after Appaloosa's David Tepper explained the end of the bond bull market was here (and 10Y rates are now 5bps lower), the trend-following master-of-the-universe explained to Bloomberg TV's Stephanie Ruhle and Erik Schatzker how the departure of Bill Gross from PIMCO was "nothing... who cares?"; why "the US economy is pretty good", how junk bonds are at "fair value" and stocks are cheap as "multiples are not high." Finally he explains how he "wished he didn't have any investment" in Fannie Mae and Freddie Mac and clarifies in his billionaire-all-knowing-ness how he is sure the United States can contain Ebola.
- European Bond Yields Go Negative (WSJ)
- Traveler from Liberia is first Ebola patient diagnosed in U.S. (Reuters)
- Hong Kong Protesters Step up Pressure on Leung to Quit (BBG)
- JPMorgan to face U.S. class action in $10 billion MBS case (Reuters)
- Turkey mulls military action against Islamic State (Reuters)
- Singapore Home Prices Fall for Fourth Straight Quarter on Curbs (BBG)
- Italy's Economic Woes Highlight Dilemma for European Central Bank (WSJ)
- Advanced iOS virus targeting Hong Kong protestors (Reuters)
- Fed Scrutiny of Leveraged Loans Grows Along With Bubble Concern (BBG)
- Mosquito Virus That Walloped Caribbean Spreads in U.S. (BBG)
Despite the ubiquitous v-shaped recovery in stocks from the US open to EU close (decoupling entirely from bonds), stocks slumped into the end of the quarter leaving the S&P and Dow barely positive for Q3 and Russell 2000 down 7.9% - its worst quarter since Q2 2011 (and -5.2% year-to-date). Treasury yields flip-flopped around in a 4-5bps range with a late-day ramp (suggesting liquidations cough PIMCO cough) leaving 30Y -1bps on the week. The USDollar suged higher in the European session and traded lower in the US session. The bigger news on the day was the carnage in commodities that appeared to occur around the European close (desk chatter of commodity fund liquidations). Silver and WTI Crude were monkey-hammered, gold and copper dropped to down 1% on the week. VIX pumped and dumped again but closed above 16. Stocks closed very weak with Russell tumbling 1.5% on the day to not "off the lows."
Things are rapidly shifting from bad to worse for PIMCO. In a triple whammy this morning, Bloomberg reports the Total Return Fund ETF (managed previously by Bill Gross) has suffered $446 million outflows (or over 12.5% of assets) so far; Morningstar downgrades the fund from 'gold' to 'bronze' citing "uncertainty regarding outflows and the reshuffling of management responsibilities"; and perhaps most concerning - given our previous warnings over bond market illiquidity - The FT reports, US regulators are monitoring trading and fund flows surrounding PIMCO's Total Return Bond fund warning investors they should contemplate the unintended consequences of pulling their money and the possibility of systemic risk disruptions, fearful of "runs."
It has been a night of relentless and pervasive disappointing economic data from just about every point on the globe: first the Chinese HSBC manufacturing data was well short of expectations (50.2 vs. Exp. 50.5), which was promptly spun as bullish and a reason for more stimulus by the PBOC even though the central bank has been constantly repeating it will not engage in western-style shotgun easing. Then Japanese wages, household spending and industrial production came in far below expectations - in fact at levels which suggest Japan is once again in a recession - which once again was spun as bullish, because the BOJ has no choice but to do more of the same failed policies that have made Abenomics the laughing stock of the world. Finally, moments ago Europe reported the lowest inflation data in 5 years, as well as core CPI sliding to just 0.7%, and which was, wait for it, immediately spun as bullish for risk as once again the local central bank would have "no choice but to ease." In other words, thank god for horrible news: because how else will the rich get even richer?
There is nothing like the release of secret tape recordings to clarify an inconclusive debate. Actually, what the tapes really show is that the Fed’s latest policy contraption - macro-prudential regulation through a financial stability committee - is just a useless exercise in CYA. Macro-pru is an impossible delusion that should not be taken seriously be sensible adults. It is not, as Janet Yellen insists, a supplementary tool to contain and remediate the unintended consequence - that is, excessive financial speculation - of the Fed’s primary drive to achieve full employment and fill the GDP bathtub to the very brim of its potential. Instead, rampant speculation, excessive leverage, phony liquidity and massive financial instability are the only real result of current Fed policy.
The last few days have been hectic for PIMCO executives. As we already noted, expectations of outflows persist and today's open in CDS markets suggested major concerns among market participants that PIMCO redemptions would force selling through an illiquid market. Sure enough, Bloomberg reports that PIMCO's Total Return Fund ETF was behind the auction of more than $170m of Fannie Mae CMBS on Friday (and more BWICs were seen today). As one trader noted, "you're going to sell your most liquid stuff first." Additionally, PIMCO has seen fit to delete all Bill Gross' tweets... so here are the last six months for the record.
The reason why the first article we wrote on Friday after news hit that PIMCO co-founder was shockingly leaving the firm on Friday, was listing the massive bond fund's biggest holdings, was because it was only a matter of time: it, being of course, the massive redemptions that would follow Gross' departure by people that his 30+ tenure at the bond fund made very rich, and who couldn't care less about a brief central planning-inspired flame out. After all Gross isn't the first person who has lost the plotline due to the Fed's manipulation of every market. So just how bad is it? Not for Gross of course: he has made his billions and is simply doing what he and Icahn do in their age: what they love. No, for Pimco, where the redemptions requests are already flooding in. According to the WSJ, just two days after the Gross announcement (both of which non-workdays), already some $10 billion has been withdrawn. And that is just the beginning.
- This is why the locals are furious at the US: U.S-led raids hit grain silos in Syria, kill workers (Reuters) explaining this
- Billions Fly Out the Door at Pimco: About $10 Billion Is Withdrawn After Departure of Gross (WSJ)
- Pimco’s Ivascyn Takes on Gross With Unconstrained Fund (BBG)
- Revealed - the Troika threats to bankrupt Ireland (The Independent)
- Private Bad Debt Build-Up Casts Shadow on Greek Rebound (BBG)
- Fed Questions Bank Maneuver to Reduce Hedge Funds' Dividend Taxes (WSJ)
- Yuan-Euro Direct Trading Begins Tomorrow as China Promotes Usage (BBG)
- Geneva Report warns record debt and slow growth point to crisis (FT)
- Greenberg Team to Grill Bernanke, Geithner on AIG Bailout (BBG)... sadly only metaphorically
While the bond market is still reeling from Friday's shocking Bill Gross departure, and PIMCO has already started to bleed tens of billions in redemptions (see "Billions Fly Out the Door at Pimco About $10 Billion Is Withdrawn After Departure of Gross"), stocks which may have been hoping for a peaceful weekend after Friday's ridiculous no volume ramp in the last two hours of trading, got hit by a double whammy of first Catalan independence fears rising up again after Catalan President Mas signed a decree committing Catalonia to a referendum bid on November 9th, leading to a move wider in Spanish bond yields, and second the sharpest surge in Hong Kong violence in decades, which led to a 2% drop in the Hang Seng, are now solidly lower across the board, with the DAX dropping below its 50 DMA, while US equity futures are printing about 9 points lower from Friday's close despite another epic ramp in the USDJPY which flited with 110 briefly before retracing to 109.50, and also threaten to push below the key technical support level unless the NY Fed's "Markets group" emerges out of its new Chicago digs and buys up enough E-minis to restore confidence in a rigged market.
Having held positions at PIMCO since 1998, Deputy Chief Investment Officer Daniel "Dan" Ivascyn is said to be the likley successor to Bill Gross, according to Bloomberg.
PIMCO is big. Scratch that, it's massive: after all it holds over $2 trillion in global securities, mostly bond-related. It is so big, in fact, it takes two pages just to list the number of funds that comprise it, let alone the securities that these funds actually own. Which is a problem when trying to estimate the impact of what a possible asset-shift, if not outright liqudation of some/all of PIMCO's holdings would have. Yet one has to start somewhere, and the somewhere probably should be with the list of the TRF's biggest holdings as a % of NAV. Here it is.
After co-founding PIMCO in 1971, Bill Gross has called it quits...
*WILLIAM H. GROSS JOINS JANUS CAPITAL
*JANUS:GROSS TO START MANAGING FUND,RELATED STRATEGIES OCT.6,'14
“I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organization,” said Mr. Gross. Full Bill Gross, Dick Weil statements...
With more than $65 billion pulled from PIMCO's funds since May 2013, Bill Gross' firm had been struggling amid spotty performance and it seems, according to The Wall Street Journal, PIMCO (not Allianz) was set to fire the 70-year old bond king this weekend. It seems clear that Mr. Gross move was pre-emptive as sources cite his "increasingly erratic behavior" and ultimatums as factors in the move. Assumptions about Mohamed El-Erian returning to run the company have been denied. Some have estimated PIMCO could see a further 10-30% in fund outflows on the back of Mr. Gross' departure.
Black Swan? Having seen liquidations of a relatively small fund yesterday send the NASDAQ down 2% and credit reeling, world bond and stock markets are reacting aggressively to Bill Gross' move from PIMCO. German stocks (PIMCO's parent Allianz is the 7th largest stock in DAX) are tumbling, European peripheral bond spreads are pushing wider (major holdings of PIMCO) and US credit markets are getting smashed (PIMCO is a major player in CDS markets and obviously a huge holder of US corporate debt) and concerns spread of redemptions triggering the kind of liquidity suck out we described yesterday.