Wednesday, February 11, 2009

Gross Bought Mortgages, Sold U.S. Debt Last Month

In keeping with hoggish traditions, Pimco and Bill Gross continue to buy mortgage paper while at the same time are lobbying for more government bailouts of the paper they are buying. Gross thinks that’s okay, his stated investment method is to buy up things that he knows the government will buy later (with taxpayer dollars whether they have them or not).

He understands, thoroughly, that the government is the buyer of last resort. Thus his goal is to be the buyer just prior to last resort.

Here’s what happens in Hyman Minsky’s seventh and final bubble stage:

Stage seven – Revulsion/Lender of Last Resort: Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.

This is where you may see the “lender of last resort” who is usually the government. The government, although they were talking up a soft landing, are now forced to step in to prevent the crises from spreading to other sectors. Ironically, this is where the savvy investor who profited before, really profits now. With government backing, they are asked to step in and return “normalcy” to a now damaged sector.

And I have absolutely no problem with him doing so, AS LONG AS he is not on television or using money to influence people or politicians to get legislation that favors him. Again, separation of corporation and state is necessary.

Gross Bought Mortgages, Sold U.S. Debt Last Month

By Dakin Campbell

Feb. 11 (Bloomberg) -- Bill Gross, manager of Pacific Investment Management Co.’s $136 billion Total Return Fund, bought mortgage-backed bonds in January, bringing the percentage of the fund’s assets in mortgages to the highest in at least a year.

Pimco’s co-chief investment officer held 83 percent of the fund’s assets in mortgage-backed securities at the end of January, according to the Newport Beach, California-based company’s Web site. Gross advised buying mortgages this month amid government support for the securities. Treasury Secretary Timothy Geithner yesterday said the government may expand the Term Asset-Backed Securities Loan Facility to include commercial mortgage-backed securities.

Mortgages are “a very safe and well-supported security based upon what the Treasury has announced and the Fed has announced that it’s going to do,” Gross said in a Feb. 6 interview on Bloomberg television.

Gross sold government debt, sending the fund’s holdings to minus two percent, after adding to his holdings in December for the first time in a year. The fund held negative positions in Treasuries and debt issued by government-backed agencies such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank system.

At the end of December, Gross held nine percent of assets in U.S. government debt and 62 percent of mortgage-backed bonds.
Gross’s Total Return Fund, the world’s largest bond fund, rose 4.8 percent in 2008, beating 93 percent of its peers, data compiled by Bloomberg show.
Note that at the same time he is buying mortgage debt that he wants to be backed by taxpayer funds, he is also selling treasury debt, the very debt that needs to be raised to fund the bailouts he is requesting.

Hello, Congress… Anybody home? No, I thought not… we won’t have separation of state and corporations until the corporations are removed from the political process. Oink!