Tony Crescenzi Discusses Newport Beach Puppet Strings

Some perspectives on why everyone should take out their credit cards (preferably one issued by General Electric), dial 1-900-PIMCO and buy as many treasuries as their credit rating will allow them. Also, fast forward to 4:20 for some candid observations on puppeteering regarding PIMCO's most recent personnel addition. Odd that CNBC should be asking such questions.
Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

PIMCO Does Not Believe In Relative Value

In the accompanying presentation, it is easy to see why Bill Gross' PIMCO is highly bullish on credit of any variety. As the table below demonstrates, taken straight out of the biggest bond fund's May 2009 presentation "Investing for the Journey and the Destination: What it means across the Capital Structure" PIMCO doesn't see any overvalued instruments in the credit realm: MBS, IG, EM and HY/Loans all have wonderfully green and positive metrics in the valuation column. As for products, while PIMCO believes that fundamentals, technicals, valuations and policy support are all "positive" exclusively for Mortgage Backed Securities, in essence this is merely window dressing for justifying to investors (and the SEC) that after every 7 am conversation with Tim Geithner, in which the latter tells Bill that he will buy yet another $20-30 billion in MBS that week, that PIMCO will be frontrunning the taxpayers in purchasing a boatload of Fannie 30 Years.



Yet with all the greenery, following the recent collapse in mortgages, and the explosion of the 30 Yr - 10 Yr UST spread, Bill may reconsider changing some of the exuberant optimism. To wit: Mr Gross may want to learn about such credit phenomena as cumulative losses and loss severities: both of which may precipitate some of the greenery into shrinkage. As Zero Hedge pointed out earlier, assuming 10 cent recoveries on upcoming defaults, the extrapolated cumulative losses could be dramatic: up to 50% of HY names may end up in default (of course that is backing into an estimate based on market trading levels of HY12). But even at half this loss level, the case will end up being that 1 out of 4 names will pay at most 2-3 bi annual coupons before payments stop, and the hot potato will have to find the most gullible investor. Of course with over a trillion notional in all possible credit instruments, PIMCO will perpetuate the "all is great" fallacy for as long as possible because as much as it tries, there is simply not a fool with a large enough balance sheet to purchase all of Gross increasingly distressed securities.



Hat tip Richard Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

Not So Deep Thoughts From The 4th Branch Of Government

Bill Gross, fresh from swimming in the nickel and dime pool, and purchasing another zillion in MBS, shares some insight. Amusingly, PIMCO is now on Facebook and Twitter, with a new friendlier, jollier, less taxpayer-crippling and hyperinflation inducing face.


PIMCO April - Free Legal Forms Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

Will Geithner End Up As XLF's Last And Only Bagholder?

When I wrote about the implications of Geithner's upcoming stress test, I observed that the institutions that have the lowest metrics in the "tangible common plus reserves plus pre-provision earnings less cumulative losses as a percentage of assets" ratio are the companies most at risk for test failure and nationalization of conservatorship. Globalmacrotrader has rerun the numbers and seems to conclude that things are even worse, concluding that absent the PPIP luring up to $750 billion in new private capital, banks are in for a world of pain. Inversely, if through the generous leverage terms, PIMROCK et al do in fact commit massive funds to bail out the asset side of the balance sheet, the outcome would again be adverse as banks will "end up less profitable" by the virtue of the downsizing in their cash flow generating assets.

While Zero Hedge does not promote trade recommendations, GMT concludes that the XLF is enjoying a sucker rally, and the best risk/return is shorting banks with low TCE ratios.

Publish at Scribd or explore others:

Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

PIMCO Holds Almost $120 Billion In MBS

According to latest holding disclosures Bill Gross is elbow deep in the U.S. mortgage mess. Of $138 billion in total assets under management, PIMCO has 86% invested in mortgage-backed securities. Additionally, the recently demustachioed Newportian has been buying treasuries through the nose: from January to February, his TSY holdings have increased from -2% (oops, someone was short Uncle Sam. j/k: he is merely another fan of the repo trade) to 15%. And as the observant ones will note, just these two add to over 100%, this is indeed the case: PIMCO was using the highly generous Fed to borrow cheap, cheap cash resulting in a -25% cash position in February. Keeping all this in mind, explains Gross' fervent pitch to the government to buy Treasuries.

In February, Gross said it was “incumbent” upon the Federal Reserve to buy Treasuries but that he wouldn’t follow the central bank’s lead. Gross missed out on the biggest Treasury market rally in 14 years in 2008, saying that yields were too low because inflation will accelerate as the deficit surges.

“We wouldn’t buy Treasuries but we would buy bonds that are correlated and related to Treasuries with a higher yield,” Gross said in a Feb. 5 interview on Bloomberg Television.

A little odd that the last statement contradicts his actual position statement but when you are the 4th branch of government things have a way of being a little extra liquid... and permitted.

Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

PIMCO Postpones Dividends; Three Funds Fail To Meet Asset Requirements

Bill Gross' recent foray into a shadow government role may be just in time to avoid the depression from spreading onto the green, green grass of the Newport Beach country club. News is out that three of PIMCO's closed-end funds have postponed dividend payments declared February 2 as they "failed to meet the ratio of assets to borrowings set by regulators." The three harbinger funds are Pimco Corporate Income Fund, Corporate Opportunity Fund and High Income Fund. Scheduled payments on these funds will not be made either today or April 2 PIMCO said in a statement today. This is not the first time the bond manager has gotten in dividend trouble: last December it was forced to suspend dividends on 6 of its closed-end funds.

U.S. Securities law prohibits dividend payments if debt funds do not meet certain criteria: funds issuing debt are required to maintain net assets of at least 300% of leverage, while those selling preferred shares must maintain a 200% ratio.

Curiously, the three PIMCO funds all closed trading last week at a premium with the High Income fund's share trading at a 56% premium to NAV. While not much additional disclosure is available at this point, for PIMCO to be in any sort of trouble, after being the main asset manager riding high on the LTM treasury wave, can only be a portent of bad things to come.

Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

Bill Gross En Route To Becoming 4th Branch of Government

The most flagrant abuser of conflicts of interest in the current economy, PIMCO (relax, relax, we jest), has just gotten its tentacles even more entangled with the rotor of the government's economic shredder. Reuters reports Bill Gross has been hired to advise the U.S. government on the $118 billion of assets guaranteed in the Bank of America bailout. Pimco will be responsible for "evaluating Bank of America's holdings, including securities backed by residential and commercial loans, to help determine the company's losses."

The world's largest bond fund is opportunistically prepared for just these kinds of assignment, by recently raising a $3 billion distressed DISCRETIONARY fund for mortgage-backed security investing. This of course happened after PIMCO was selected for a comparable assignment, where it was picked to advise on $80 billion of credit union deposits. We fully expect Gross in his next monthly letter to announce the creation of a distressed fund investing/shorting Bank of America securities. But, of course, everything in Newport Beach is walled off from everything else. Last time we checked El-Erian was personally putting up chinese walls within the Sharkeez booths in Newport Beach. Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

Bill Gross Pushes Book, Makes Fun Of US Blondes, Ridicules Roubini and Trims Moustache

Bill Gross' March investment letter/PIMCO monthly demand for taxpayer money is out. Nothing new here: the US government should avoid nationalization, but no viable alternative provided. Some harsh language on Roubini, Dodd, Greenspan and Orange County blondes. And as always, demands for more taxpayer funds to keep coming as otherwise PIMCO may be impaired as a creditor in most bank holdings.

I think Roubini, Dodd and Greenspan haven't thought this one through. The U.S. isn't Sweden, and not just because our blondes aren't au naturel [Billy must have a lot of carpet curtain matching experience with the Desperate Housewives of OC]. Their successful approach revolved around a handful of banks but we have 7,500 as well as many S&Ls and credit unions, which would have to be flushed into government hands. Regulators are overwhelmed as it is and if you thought Lehman Brothers was a mistake, just standby and see what nationalizing Citi or BofA would do. Our banks remain at the heart of the domestic/global financial transactions and daily clearing, while those Scandinavian banks were not. PIMCO would not dispute the need to further capitalize systematically important banks via convertible bonds held by the government, which unfortunately dilute shareholders' interests. To go further, however, and "haircut" senior debt or even existing preferred stock similar to that issued via the TARP would create an instability policymakers should not want to risk. In turn, forcing creditors [ed. i.e. PIMCO] to take haircuts would undermine other financial sectors such as insurance companies and credit unions. The goal of future policy should be to recapitalize lending institutions while maintaining the basic infrastructure of credit markets [ed. or else PIMCO will fail]. Outright nationalization and haircutting of creditors will do just the opposite.

Gross March - Free Legal Forms Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
•