Friday, June 08, 2007

Lies, damn lies, and PIMCO Newsletters

Dear reader, you know I have nothing but your best interests at heart. And I know that most of my readers are bond market pros, so this will come as no surprise to you. But to the other readers, who maybe are focused on the stock market or who are amateur students of investing, let me give you one piece of advice:

Assume Bill Gross is lying. At all times. He may be the world's preeminent bond manager, but when he talks about the bond market, ignore him entirely. Tony Soprano is more likely to give you an honest opinion on interest rates.

Yesterday, word came out that Gross had told a group of PIMCO portfolio managers that he had become a "bear market manager." This according to Reuters. Today he tells CNBC that the Fed will cut in 6-9 months and that he's still quite bullish on short-term bonds. This kind of thing creates a bit of an uproar among those not aware of Mr. Gross' constantly burning pants.

The PIMCO Total Return fund has an excellent long-term history, but the strategy is completely opaque. Its full of derivatives, so getting your hands on what his duration or spread position might be at any time is impossible. That's not an indictment of derivatives, just a fact. A fact that frees Gross to make shit up every time he's interviewed without consequence. I wonder if they have meetings trying to come up with a well-articulated opinion that is opposite of what he really thinks.

As an aside, most bond guys make most of their alpha through strategies other than interest rate anticipation. So while CNBC sees a bond guy and can't think of anything to talk about other than the Fed, its a little more complicated.

6 comments:

Anonymous said...

Couldn't agree with you more. Every time Gross pipes in, I'm inclined to take the other side.

Anonymous said...

Hear Hear. He speaks from position - uses the market to get out at a better price. By the time his followers get in, he probably would have exited

Anonymous said...

Reuters doesn't appear to have gotten the whole story on Gross' position. See Bloomberg article below.

There's a reason I call PIMCO Pimpco...

Pimco's Gross Says He's Still a Bond Bull in a Bear Market 2007-06-07 16:42 (New York)


By Deborah Finestone
June 7 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund, said he continues to expect a ``mild bull market'' for the next year.
``We do like bond markets from this point forward for the next six months,'' Gross said in comments posted on the Pacific Investment Management Co.'s website from an annual meeting of firm's fund managers. ``But we do suggest in 2008, 2009 and 2010 that interest rates will be moving mildly higher.''
He reiterated that housing would slowdown the U.S. economy and the Federal Reserve will cut interest rates in the ``latter part of 2007.''
The comments came as the benchmark 10-year note yield reached 5.11 percent today, the highest since July, according to bond broker Cantor Fitzgerald LP.
Global growth may ``exert some type of upward push in terms of inflation and ultimately in terms of interest rates,'' Gross said.
Gross last month raised his forecast range for 10-year U.S. Treasury yields on concern inflation may quicken in countries with weakening currencies such as the U.S. Ten-year yields will probably range from 4 percent to 6.5 percent until 2011, he said. Gross had previously said the yield would fluctuate between 4 percent and 5.5 percent.
``After 25 years of being a bull market manager to all of a sudden become a bear market manager, although mildly so in terms of higher interest rates over the next three to five years, is sort of a major shift,'' he said. ``But I think it is a well- deserved shift.''
The comments were first reported by Reuters.
Gross manages Pimco's $103 billion Total Return Fund in Newport Beach, California. Pimco, which oversees about $668 billion, is a unit of Munich-based insurer Allianz AG.

--Editor: Liedtka

TDDG said...

Thanks for the Reuters piece. Gotta love the press for grabbing one sound bite and running with it.

F. said...

These guys aren't philanthropists. They are capitalists, and they move move and manipulate markets in the short-term to their advantage.

Big fund managers will often speak at important technical points in the market to help out their side. I would too if I had that kind of power.

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