Thursday, January 29, 2009

Bill Gross Saying U.S. Should Buy Cheap Assets, Maybe Even PIMCO Bonds

Bill Gross, manager of PIMCO, the largest bond fund in the U.S., issued his February investment outlook today. His main argument is the following "To PIMCO, the remedy for this deflationary deleveraging and mini-depression is simple and almost axiomatic: stop the decline in asset prices." (ed. "mini" depression? Looks like Bill won't go full Rosenberg on this one). Without saying anything new, Gross is advising the Treasury, Central Bank, i.e. the U.S. taxpayers, to buy cheap assets (presumably ones in which Bill is axed himself). Not surprisingly, PIMCO was one of 4 funds picked in December to purchase mortgage-backed securities, and one of the managers selected to run the CP funding facility, and of course, was a top contender to purchase toxic debt under TARP before Hank Paulson scrapped that idea. In the spirit of increasing transparency, it is interesting just how much of these securities Bill has purchased ahead of time for his own book?

But we digress. Bill concludes "PIMCO’s advice to policymakers is as follows: you can’t bail out everyone, yet economic recovery is not possible unless certain critical asset sectors are not only reliquefied, but rejuvenated in price. Capitalism at its philosophical and practical center depends on credit, and while new loans can be and are being advanced via the banking system, it’s a much more difficult task to force shadow banks to lend. That lending depends on securitization which in turn depends on stable and eventually higher asset prices than currently exist."

Ok, we get it and we like it, but as hard as we try, we can't help being cynical in asking just how much of a benefit for his investors (and himself personally) would Bill reap as the U.S. uses taxpayer money to purchases these "cheap" security classes.

The full letter is here. Sphere: Related Content
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Anonymous said...

When you ask the butcher if the meat is fresh, what do you expect him to say?