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PIMCO's Bill Gross Commentary |
HenryTo
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 Posted: Wed Apr 04, 2007 12:56 pm Post subject: PIMCO's Bill Gross Commentary |
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April 2007 commentary from Bill Gross:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+April+2007.htm
Along the lines of what I wrote in our weekend commentary. The danger is in overregulation and tighter lending standards for months/years to come, not the current/potential losses from higher resets, etc.
| Quote: | | It will not be loan losses that threaten future economic growth, however, but the tightening of credit conditions that are in part a result of those losses ... Bulls and bears argue over websites as to the percentage of all lending that subprime and alternative mortgage loans provide but while important, the argument obscures the critical conclusion that tighter lending standards and increased regulation will change the housing outlook for some years to come. As past marginal buyers are forced to sell their home to prevent foreclosures, so too will future marginal buyers be restricted from buying them. |
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PIMCO's Bill Gross Commentary Replies |
HenryTo
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rffrydr
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| Posted: Fri Mar 07, 2008 1:21 pm Post subject: |
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Bill Gross on CNBC calls for "Operation Twist II"--from the sixties, taking mortgages for treasuries. --And punching the gas pedal.
How times have turned for this man since Brazilian bonds almost got him.
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rffrydr
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lmrhoades
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| Posted: Tue Feb 26, 2008 10:36 am Post subject: |
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Henry...
Would you suggest buying in leverage loan portfolio such as hflax fund or a cef such as nsl?
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HenryTo
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| Posted: Tue Feb 26, 2008 10:23 am Post subject: |
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Bill Gross' latest monthly commentary. Rehashes some old points - but also discuss what sounds enticing (given higher inflation) at the end of his commentary:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+March+2008.htm
| Quote: | This leads me to #3 on my list of action plans. What should an investor do – desperately trying to avoid the Old Maids, yet trapped with good Treasury cards at yields inappropriately low in a mildly inflationary future environment? The answer lies in managing a transition to riskier assets while being acutely aware, as my CIO partner Mohamed El-Erian is quick to point out, that such a transition will be characterized by technical purges of Old Maid and even higher quality assets that in many cases produce price levels significantly below what might at first seem reasonable. Minsky moments – the unwinding of levered assets – produce as many surprises on the downside as do $5 million dollar homes in Silicon Valley and NASDAQ 5,000 point stocks on the upside. Patience and cognizance of flows, El-Erian counsels, are as critical to the equation as is the recognition of the Old Maids in the first place.
Still, we would both agree that value is returning to many parts of the bond market. If an investor requires 5%+ yields to compensate for future inflation, then they can increasingly be found in authentic AAA assets – not disguised Old Maids. There’s not a hint of plastic surgery in agency-backed FNMA and FHLMC mortgages at 5¾%, although their actual ages (average lives) may be somewhat in doubt. Similarly, SBA government-guaranteed loans at LIBOR+ 125 basis point yields are beginning to entice, as are some of those bank loans when priced in the high 80s as opposed to 95 cents on the dollar. If capitalism is a going enterprise – and we think it is – then investors will eventually return to play similar, perhaps more conservative games – much as they have in the past. And if Washington gets off its high “moral hazard” horse and moves to support housing prices, investors will return in a rush. PIMCO wants to sit at this more attractive return table – to provide an attractive return on your money (no matter what the asset class) as well as a return of your money. No Old Maids. No silicone AAA ratings. And ladies – no crotchety old bachelors either. The game, as well as the name of the game, is changing. It’s no country for Old Maids anymore. |
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HenryTo
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HenryTo
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rffrydr
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HenryTo
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| Posted: Wed Jan 30, 2008 4:41 pm Post subject: |
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In other news, the head of the ISDA sounds off on Gross' $250 billion projection in losses related to CDS:
http://www.ft.com/cms/s/0/80f0e842-ce0c-11dc-9e4e-000077b07658.html
| Quote: | Focus on the net exposure of these transactions, many of which hedge or offset one another. A recent Fitch Ratings survey estimates net exposure at less than $1,000bn. Factor in a probability of default of 2 per cent and a 25 per cent recovery rate and protection sellers would have to settle an aggregate $15bn of losses. None of these amounts would be "lost" to the system; a credit derivative simply transfers a potential gain/loss from one party to another. Clearly, while $15bn is not trivial, it is a small fraction of aggregate write-offs to date on loans and securities; and less than a 10th of Mr Gross's suggestion.
And our figures are conservative: we use a slightly higher ($50,000bn) figure for the total reference amounts; we round up the net exposure figure; we use a higher default rate than the 1.25 per cent used elsewhere; and our projected recovery rate is much lower than the 50 per cent used by Mr Gross.
Also, defaults in a downturn are usually considered to eliminate a much higher proportion of lower-rated companies, whereas surveys show that only about one-third of credit derivatives are written on subinvestment grade credit. So the impact of default would not necessarily be the same for credit derivatives as for credit markets as a whole. And such trading losses would be unlikely to hit simultaneously.
Even if default rates prove higher than those used here, settlement flows in credit derivatives would likely be much lower than in Mr Gross's assumptions. This is not just theory. Settlement has occurred on this basis for several "credit events" where participants have organised net settlement through ISDA, with wide-ranging support, including from major bond funds. |
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rffrydr
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| Posted: Wed Jan 30, 2008 1:45 pm Post subject: |
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Gross vindicated. Went all wrong last year but now has nailed dramatic call for Fed cuts.
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rffrydr
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| Posted: Tue Jan 29, 2008 12:28 pm Post subject: |
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There is a war on. That used to be the fiscal fix non-plus ultra.
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HenryTo
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| Posted: Tue Jan 29, 2008 12:11 pm Post subject: |
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Latest February commentary from Bill Gross:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+February+2008.htm
| Quote: | My point is that Chairman Bernanke must recognize the reduced benefits and obvious dangers of a déjà vu trek to 1% short rates. Those yields produced 5% 30-year mortgage rates to the homeowner for a 2-3 month period in 2003 and they could do so again, but bubble creating, inflation inducing damage to the U.S. dollar would be the likely result now. Best to stop far short of 1% and at the same time encourage reforms in FHA government assisted programs that would permit subsidized mortgage rates with minimal down payments.
An artificially low, 1% short-term interest rate was an elixir during the days of a burgeoning shadow banking system. It cannot be the solution now.
In combination, a well constructed, more than temporary fiscal/monetary stimulus plan is what is required to rejuvenate a U.S. economy reeling from a low punch delivered by a private market economy gone too far. Its "Rosemary’s Baby" took the form of a shadow banking system based on leverage and the fateful conclusion that a finance-based economy alone can deliver prosperity. It cannot. As Keynes theorized and then Krugman affirmed, when private demand falters, it becomes the responsibility of government to fill the breech. Because it likely will not do so effectively until after a new Administration is elected in late 2008, the U.S. economy and its somewhat coupled global companion will sleep walk for some time and a resumption of prosperity as we knew it will be dependent on reforms of monetary and fiscal policy resembling the 1930s more than our past decade. Better late than never. |
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rffrydr
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| Posted: Fri Jan 11, 2008 5:18 am Post subject: |
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Blackstone follows. And in the process redefines itself--no longer the "client."
| Quote: | Blackstone buys debt specialist for $1bn
By Henny Sender in New York
Thursday Jan 10 2008 14:05
Blackstone Group is acquiring GSO, a hedge fund specialising in debt, for about $1bn in a deal that seeks to exploit the opportunities created by the credit market turmoil.
With GSO's $10bn in assets, Blackstone's debt business will grow to $22bn, putting it closer to competing head to head with the leading Wall Street investment banks. Goldman Sachs (NYSE:GS) launched a $20bn mezzanine fund last year to provide capital at a time when many companies are having trouble borrowing.
"There are lots of ways in which our debt business is a client of Wall Street, but this deal does have an element of competition," said Blackstone's chief executive, Stephen Schwarzman, who characterised the acquisition as a response to recent market upheaval.
"At this point in the cycle, we are looking at more conservative deals with much better economic returns," Mr Schwarzman said. "There are a lot of middle-market companies that need to be financed."
Blackstone is buying GSO for cash and shares to accommodate the GSO partners' desire for a share in Blackstone. Blackstone will then repurchase up to $500m of its own shares. At midday, Blackstone shares were trading at $19.59, up more than 8 per cent, but well off its issue price of $31 last year.
The deal reunites many top executives of the old Donaldson Lufkin & Jenrette investment bank, acquired by Credit Suisse in 2000.
Tony James, Blackstone's president, had served as chairman of the banking group at DLJ, where he worked with Bennett Goodman, Doug Ostrover and Tripp Smith, the founders of GSO.
Since joining Blackstone, Mr. James has recruited many former colleagues.
Since it was founded in 2005, GSO has cultivated a reputation as a careful investor. Blackstone was an original investor in GSO. Other investors included Merrill Lynch, which is selling its 20 per cent stake as part of the transaction.
GSO operates credit hedge funds, a mezzanine fund and collateralised loan obligation businesses.
Blackstone and GSO are likely to launch a new mezzanine fund. The GSO brand will survive the merger. |
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rffrydr
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| Posted: Thu Jan 10, 2008 4:44 pm Post subject: |
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If you use anything close to The Fed Model that's where the value is. I wonder if there's any EEM to the mix. Gross took a lot of flak for that one.
ETF is HYG.
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