In a pathological example of nearly clinical hypocrisy, PIMCO's Bill Gross yesterday dedicated 4 meandering essay pages full of polemical ramblings to the characterization of America's sad political and financial hybrid reality. Yet the billionaire's saddest message is precisely the self-deluded aggrandizement that Gross decries yet willfully takes advantage of every single day. Because after bemoaning the fate of America's broken political system, and ridiculing the Federal Reserve's kleptocratic-friendly ways, it is precisely people like the PIMCO chairman that are most guilty of taking advantage of every single loophole presented to them, even as they criticize just this activity. This, beyond all the petty trivialities that Gross discusses, is precisely what is most wrong with America - at this point everyone, and especially Mr. Gross, knows too well that the wealth transfer from the middle class to the elite 1% of society will not end until such time as America itself defaults. Yet having the very people that benefit the most from this, write non-apologetic letters in which they criticize the very system that lets them walk home every day with an extra zero in their bank account simply due to their special connections within this very broken system, is beyond reproach.
Our government doesn't work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people... What amazes me most of all is that politicians can be bought so cheaply.
Well, Gross should know all about special interests and bribery. A casual check indicates that the PIMCO boss himself donated $6,900 to future present Barack Obama in 2008, and another $4,000 to the Democratic Senatorial Campaign committee. What was the IRR on that investment Mr. Gross? Just how many special Treasury JVs is PIMCO part of these days, and how much taxpayer money ends up in the Newport Beach bond manager daily, to simply trade side-by-side with the Federal Reserve and front-ru(i)n the broader investing public? Was Obama the cheapest politician you could buy?
We were so appalled with the result of this query that we decided against checking further back in time to see just what the price of bribery for prior presidents was. However, we did check how much of a "special interest" PIMCO itself is - to our (lack of) surprise, Mr. Gross, your company has spent at least $431,101 to curry favor with assorted representatives of the government in precisely the very action whose daily occurrence you lament. In the face of the below table, can you please tell the American public how they are supposed to take you seriously ever again?
At least Gross is not completely naive in his polemic, and realizes the irony of his own message:
If, in 2009, PIMCO recommended shaking hands with the government, we now ponder "which" government , and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.
We are fairly confident that despite your concerns, when it comes to carefree check writing from the perspective of one of the nation's largest "special interests", you will have no problems in figuring out just "which" government you need to lubricate sufficiently in 2010 to guarantee your ongoing middle-class wealth transfer and unprecedented administrative bribery Internal Rate of Return.
Yet the epitome of hypocrisy comes from the following paragraph:
Here's the problem that the U.S. Fed's "exit" poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but foreign investors as a group bought only 20% of the total - perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve. Of course they purchased more 30-year Agency mortgages than Treasuries, but PIMCO and others sold them those mortgages...
We'll stop right there. And while first we want to thank you for paraphrasing almost verbatim Zero Hedge's primary concerns for 2010, we do have some questions. As you point out, PIMCO was all too happy to sell to the US taxpayer the extremely overvalued mortgages whose prices the actions of the Fed brought to a valuation grounded purely in Bernanke's money printer and nowhere in reality. As the chart below highlights, in 2009 your Total Return Fund sold $95 billion of MBS directly to US taxpayers at a price likely far above fair value, with America's citizens eating the difference, and PIMCO profiting handsomely. Since we are discussing what appears to be boundless hypocrisy, would you, Bill, be so kind to indicate just how much of a profit on these transactions you generated, and at what price did you sell these MBS to the Federal Reserve? Because we do find it very ironic of you on one hand to discuss the flaws in the Fed's monetary policy and lament the passing of 2009 generous extra liquidity environment, and on the other hand to make what are likely billions in profits courtesy of what can only be characterized as blatant wealth transfer.
That being said, we are fairly concerned how your $100 billion+ in government bonds will fare in the liquidity-checked environment you discuss. Is your letter merely a shot across the Fed's bow as a warning that the next QE should focus not so much on MBS but on Treasuries once again? Because it would appear to us that you stand to lose the most when the yield curve surges once all the things you prophesy come true.
Lastly, you say:
"Most "carry" trades in credit, duration and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their "sugar daddy." There's no tellin' where the money went? Not exactly."
You are absolutely right, the money went straight to the bottom line of money special interests such as yourself, which had appropriately goosed the administration apriori. But we can see why you may be nervous. With your fund clearly leaning in one political direction: the one which will likely be the biggest loser (to keep things in terms of trades) in 2010, and loaded to the gills with the securities which if you are correct, will be among the biggest losers in the coming 12 months, we can understand your exasperation. After all, it is unnerving when the heretofore guaranteed smooth sailing between the printer cartridges of the Federal Reserve appears like it may be coming to an end.
Yet if we may suggest something? You say:
The fact is that investors, much like national citizens, need to be vigilant and there has been a decided lack of vigilance in recent years from both camps in the U.S.
Again, we agree, and we vow to be just those "vigilant national citizens" who call you out for your investor letters filled to the brim with unmitigated hypocrisy. Because while your skin-deep polemics on the direction of the economy may sound like sincere concern to the portion of the population you lament has lost its vigilance, we are happy to point out the message between the lines.
Our advice - instead of continuing to write checks to the administration, and perpetuating the act you so despise, how about writing a check to the American people, whom you took for the proverbial ride in 2009? As you point out, Mr. Gross, the winds of change are starting to blow, and what is true in politics is usually true in finance as well. It may behoove you to supplicate the American middle-class while you still have a chance to do so voluntarily, rather than in a few years when you are forced to do so by a jury of your peers. But then again, that would be a very unhypocritical thing to do. Because while writing about it is easy, actually doing something about it is ever so much harder, isn't it Mr. Gross?