Comments on: GURU OUTLOOK: THE BOND KING

By: John

John — Thu, 04 Feb 2010 13:54:14 +0000

Gross was a professional blackjack player. He still is, except he is now the dealer. The House sets the rules to give the House the advantage. The dealer only shows one card and plays his hand after the punters. Is there any reason to belive that anything revealed by PIMCO (Gross or El-Erian) is anything other than a headfake? Public comments by El-Erian indicate an uncertain future that can be managed by giving your money to PIMCO to manage.

By: jt26

jt26 — Wed, 03 Feb 2010 16:47:30 +0000

Don’t forget the GM (not GMAC) bondholders in bankruptcy. The gov may be more unpredictable given the current political climate.

By: chris

chris — Wed, 03 Feb 2010 16:46:59 +0000

sorry, just one more thought…the treasury is now saying that they expect they will not be repaid $90B from TARP, hence the bank fee.

this excludes fannie and freddie. where does gross think the treasury is looking when it sees a shortfall? hello aig? hello gmac?

By: chris

chris — Wed, 03 Feb 2010 16:42:51 +0000

i understand the thinking and i think anyone who buys debt in fannie, freddie, aig and gmac is speculating, not investing. in my example with ms and cof, there was a much bigger margin of safety. the shake hands with the government investment play has passed.

in particular, if you do a liquidation scenario on aig, whether the liquidation proceeds results in covering your debt depends on mister merger market, not on uncle sam. as for gmac, freddie and fannie, they are no longer viable enterprises; someone is going to have to take the shovel away from them before they reach china.

By: TPC

TPC — Wed, 03 Feb 2010 16:37:14 +0000

His thinking is simple here – the government is not going to let them fail after having invested so much money into them. So, they’re still a high yield way to play relatively safe bonds. I have to agree with him there.

By: TPC

TPC — Wed, 03 Feb 2010 16:35:36 +0000

Perhaps its more appropriate for me to say that Gross made the term famous?

By: chris

chris — Wed, 03 Feb 2010 16:30:37 +0000

“He recommends investors look into the GMAC 8% due 2031 and the AIG 8.25% due 2018.”

i think these picks are too late and too dangerous. i have done the shake hands with the government investment, buying eg MS and COF notes 6.5% notes due 3-4 years out at a YTM of 10-12% just after the TARP investments were announced. there the US was telling you that the banks would not be nationalized but rather supported and they would survive. this window has closed and there is nothing left but junk that the U may very well have to resolve (gmac) and liquidate (aig), with results still very much u in the air.

why does gross think aig or gmac will survive? these are very different situations from the banks of last year. as far as i can tell debt is at risk for both of them, and i don’t think you are being compensated sufficiently for the risks.

he writes a nice letter though.

By: scone

scone — Wed, 03 Feb 2010 14:38:20 +0000

I fervently hope Bill stays healthy, and right. I’ve got half our 401k in PTTRX!

By: PazzoMundo

PazzoMundo — Wed, 03 Feb 2010 09:04:02 +0000

Hey TPC,

Don’t mean to be a stick in the mud, but according to my (fleeting) research Big Bill was the creator of the term “the New Normal”. I give the points to McKinsey’s CEO from February 2009 – give the consultants their time in the sun I say.

For what it is worth here are my findings from October:
http://www.datadiary.com.au/2009/10/19/memecheck-the-new-normal/

Cheers as always,
PM