Tuesday, February 25, 2014

Epic confrontation between Bill Gross and Mohammed El-Erian at Pimco (*Corrected)

Note: I am making a correction to this post. Pimco did not have a "terrible year." According to the firm it beat its index so one could say it simply had a bad year relative to past performance. In addition, the firm claims that outflows were due to "rotation." The main point of my post, however, is that Gross fundamentally misunderstood the fact that the funds to buy Treasuries come from government spending itself and he continues to mischaracterize the United States as a household that can run out of money.

I have extended an open invitation to Bill Gross to discuss these topics on my show that I do at the NYSE for Hard Assets Investor or, right here on Mike Norman Economics.

I've said for a long time that Bill Gross doesn't know what he is talking about. We've cited examples on this blog, like the now-infamous, "Who's gonna buy them now" comment that Gross tweeted back in 2011. With that comment the "Bond King" displayed to the world that he had no understanding of sovereign fiat money systems.

Gross went on to have a bad year relative to his past performance and we also predicted large capital outflows from his fund and that's exactly what happened.

And Gross wasn't the only one on the receiving end of our scorn. There was Mohammed El-Erian, the Pimco CEO and former IMF economist who spoke in riddles when it came to the economy, perhaps to hide his own ignorance.

Now there's a story out today in the Wall Street Journal about an epic internal clash between these two behemoths. To me it seems like a battle between two partners who basically ran their firm into the ground (maybe that's too harsh) or, we can say at least, damaged its Tiffany reputation.

Check this out from the WSJ piece:

Mr. Gross—by his own admission, a demanding boss—had long showed respect for Mr. El-Erian and indicated that the younger man eventually would take over the world's biggest bond firm. But one day last June, the two men squared off in front of more than a dozen colleagues amid disagreements about Mr. Gross's conduct, according to two people who were there.
"I have a 41-year track record of investing excellence," Mr. Gross told Mr. El-Erian, according to the two witnesses. "What do you have?"
"I'm tired of cleaning up your s—," Mr. El-Erian responded, referring to conduct by Mr. Gross that he felt was hurting Pimco, these two people recall.

Pretty uncivil if you ask me. And don't forget, this is a "white shoe" Wall Street firm. Anyone who's ever worked at a top of the line, white shoe, Wall Street firm, knows that discussions, conversations, indeed, even arguments, are all conducted in the most civil, low volume, non-confrontational manner that you can possibly imagine. You're NEVER going to see two co-CEOs out there trying to tear each other down in front of the hired help. If daggers are to be thrown they get thrown quietly, usually behind backs, but never EVER out in front for all to see. That's what makes this confrontation so amazing. They were really going off the rails.

I've long said that ever since Paul McCulley left Pimco in 2010 that was teh end of their dominance. McCulley was not only Pimco's brilliant and ecclectic chief economist, but he was also an MMT adherent. You can't say that about Gross.

I remember back in 2003, when I had Gross on my radio show, he brought up his now very well known, but incorrect, anaolgy of the United States as a household. When I asked him how he did not recognize the distinction between a currency user, like a household and a sovereign government that is a currency issuer he seemed baffled and even bothered by the question. He said to me, "At the end of the day, they're really the same."

That's the thing, Bill. They're not. They're just not.


Chewitup said...

If anyone was Secretariat it was McCully.

Matt Franko said...

LOL Mike!!!!

Mohammed "Sugar High": "I'm tired of having to clean up your shit!" LOL!!!

Sounds like Gross should have read his classics:

"Between Housecraft (the art of governing a Household or Home) and Statecraft (the art of governing a Nation) there are differences corresponding to those between the two kinds of community over which they severally preside. There is, however, this further difference: that whereas the government of a nation is in many hands, a household has but a single ruler.

Now some arts are divided into two separate branches, one concerned with the making of an object—for example a lyre or a flute—and the other with its use when made. Statecraft on the other hand shows us how to build up a nation from its beginning, as well as how to order rightly a nation that already exists; from which we infer that Housecraft also tells us first how to acquire a household and then how to conduct its affairs.

By a Nation we mean an assemblage of houses, lands, and property sufficient to enable the inhabitants to lead a civilized life. This is proved by the fact that when such a life is no longer possible for them, the tie itself which unites them is dissolved. Moreover, it is with such a life in view that the association is originally formed; and the object for which a thing exists and has come into being is in fact the very essence of that particular thing.

From this definition of a Nation, it is evident that the art of Housecraft is older than that of Statecraft, since the Household, which it creates, is older; being a component part of the Nation created by Statecraft.

Accordingly we must consider the nature of Housecraft, and what the Household, which it creates, actually is....." Aristotle, Economics, c. 350 BC

No that's ok Aristotle, what do you know anyway? we can just be thinking they are the same thing!!!

What a bunch of morons LOL!

The Rombach Report said...

03/03/11   Inside the News:  Take the Other Side of PIMCO’s Trade-Rombach… http://reut.rs/qoWqDG 

04/27/11   PIMCO Makes a Gross Miscalculation.....  http://bit.ly/glYxgF

mike norman said...

I'm surprised Gross didn't kick El-Erian's ass out the door. With a salary of $100m per year, he is easily the most overpaid guy in the universe. "Sugar high," my ass!

Matt Franko said...

Nice calls Ed!!!! rsp,

The Rombach Report said...

"Nice calls Ed!!!!"

Matt - I could not have made those calls without the insights I obtained from MMT.

Matt Franko said...

I know Ed that's why I keep trying to tell you that you are not a libertarian ultimately (according to my perceptions...) as you CAN perceive the authority of the state... this is not a "bad thing" imo...


The Rombach Report said...

Matt - You are correct that I am not 100% dyed in the wool libertarian because I don't agree with everything that Ron Paul advocates. For that matter, Rand Paul does not agree 100% with his father. Nor am I 100% Supply Side or MMT. Maybe my approach is flawed but I prefer to cherry pick what elements of these disciplines works for me. That said, my perception is that the federal government has overstepped its legitimate authority under the US Constitution.

Matt Franko said...

Ed ok I see .... and again it was one hell of a call man...