Szu Ping Chan — Eurozone can't survive in current form, says PIMCO

The political direction shows that the EZ can't just hang out where it is forever. The anti-euro parties are growing in strength and will be increasingly disruptive, threatening the existence of the currency union.

Telegraph
Eurozone can't survive in current form, says PIMCO
Szu Ping Chan

With Gross's departure maybe Morningstar should upgrade Pimco, not downgrade it

Morningstar downgraded Pimco's Total Return Fund today, from a gold rating to bronze, because of the departure of Bill Gross.

But wait...wasn't Gross doing poorly? Didn't he get pretty much everything wrong over the past few years with respect to his trades and bond outlook? We documented a lot of his comments on this blog.

Wasn't it Gross who tweeted, "Who's gonna buy them now?" suggesting that there would be no one to buy Treasuries once the Fed ended its Quantitative Easing that it had been doing at the time?

It almost seemed like Gross became very dogmatic in recent years, like a Peter Schiff or something, with a questionable lack of understanding of the bond market, the Fed's role and sovereign money. (Recall his misguided, "America is like a spendthrift family" analogies.)

If that's the case, why downgrade Pimco? Maybe some better performance is in store.

I take nothing away from Gross; he's compiled an amazing long-term track record and his marketing savvy when it came to building Pimco was amazing, but...

Let's not mistake a 30-year bull market in bonds for genius and let's also take into account that the guy was saying some pretty wacky stuff.

Hey Morningstar...maybe you got this all wrong.

Joe Weisenthal — Here's The Investment Outlook From The New Managers Who Just Took Over PIMCO's Flagship Fund

With Bill Gross' abrupt departure, PIMCO's flagship Total Return Fund has been taken over by Scott Mather, Mark Kiesel and Mihir Worah. 

Maher, Kiesel, and Worah have just published a Q&A about their investment approach, and what opportunities they see now 

Here's the relevant part

Business Insider
Here's The Investment Outlook From The New Managers Who Just Took Over PIMCO's Flagship Fund

Joe Weisenthal

Bill Gross — For Wonks Only

“For Wonks Only” Speed Read 

1. Cross your fingers, credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring.

PIMCO INVESTMENT OUTLOOK — September 2014
For Wonks Only
William H. Gross | Managing Director

Paul A. McCulley Pimco letter

Paul McCulley's first letter since unretiring.

PIMCO Macro Perspectives
Just Give Me a Framework
Paul A. McCulley

Zero Hedge — PIMCO Rehires Paul McCulley As Its "100 Days Per Year" Chief Economist

More on McCulley

Zero Hedge
PIMCO Rehires Paul McCulley As Its "100 Days Per Year" Chief Economist
Tyler Durden

McCulley returns to Pimco

Reminiscent of Jobs return to Apple after near disastrous results?

Bond manager Pimco lost one familiar face this year but is seeing another return.

The Newport-Beach, California-based firm, which manages just under $2 trillion for clients, said Tuesday it has re-hired Paul McCulley, who has held a variety of positions for Pimco but now will serve as managing director and chief economist.

CNBC Jeff Cox
Pimco to turn to an old hand to steady the ship
Jeff Cox | Finance Editor

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.

Some great guys to fade are just now getting bearish on stocks

Well, one of my favorites, Bill Gross, is out there telling everyone to "be careful." Gross says that the economy could tank because of debt and taper, bringing stocks down with it and that's why he's buying bonds.

Gross has been as cold as ice as, well, forever. Or, at least since Paul McCulley (Pimco former chief economist) retired in 2010. McCulley was/is an MMT guy. How 'bout that?

Since McCulley left Gross has been selling bonds when he should have been buying them and buying bonds when he should have been selling them. Pimco has lost a ton of clients as this blog predicted way before it happened.

I can tell you this, one of the best techniques I learned during my days as a floor trader was to fade guys who were cold and they don't get any colder than Gross, so I'm planning on fading him.

Next there's Tom DeMark, some technical kook who bizarrely has this huge following (as I scratch my head) many of whom are big time hedge fund guys. Personally I find his analysis to be about as rational as the practice of voodoo.

DeMark was on CNBC (where else?) today where he says that there may be a 40% stock market crash in the next three days. He goes into some crazy explanation that talks about 1929 and the number of days leading up to that crash and then tries to use that as a basis for his call now. All crazy talk. You can see why, if you know what you are doing, you can really make money as a trader because there are just a bunch of crazies out there making calls on the market that have absolutely no clue as to what the hell they are talking about.

(Take my Forex course! You'll see how to make money!!)

Anyway suffice it to say I'm seeing a lot of hysteria from people who are either colder than the polar vortex that is currently invading half the United States or just plain crazy. That's why I'm buying stocks down here and although I wasn't planning on selling bonds, since Gross is saying he wants to be a buyer then, ahhh, what the heck, I'll sell the damn bonds, too!

Bill Gross's Pimco no longer the largest mutual fund

We kind of predicted that here at MNE. Bill Gross has shown some shocking degrees of misunderstanding when it comes to economics and the monetary system. It was only a matter of time before clients started pulling out.

For the record, we have been painstakingly pointing out Gross's terrible calls over the years and some examples are here, here, here, here, here, here, here, here and there are even more!

A lot of people may not know this, but ever since Pimco's former Chief Economist, Paul McCulley, left in 2010, it was the beginning of Pimco's slide. Paul McCulley happened to be in agreement with much of MMT.

It's no secret, people...you understand how the economy works, you make money. MMT! (And just as an aside, maybe that's why there has not been one single losing trade in any of my Forex courses so far...MMT!)

Pimco's current co-CEO, Mohammed El-Erianwas Chief Economist at the IMF before coming over and he was also managing the Harvard Endowment just prior to joining Pimco in 2007. Harvard Endowment got killed in the financial crash.

Let it be known that he was no MMT guy either.

P.S. I got an email today from a guy who told me that he was a Peter Schiff client and his account was murdered. Surprise, surprise.

After losing money as a fund manager at Pimco, "TARP BOY," Neil Kashkari, goes back to government where he can impoverish more people

So according to the Wall Street Journal, Neil Kashkari is resigning his position at Pimco after poor performance running some of their equity funds and he's returning to where all former money-losing-ex-Goldman-Masters-of-the-Universe go when they're done blowing out tons of money--to government. Kashkari is running for office in California, it seems, as a Republican. So now he'll just impoverish people via the public sector, with classic Republican austerity, anti-labor, pro-corporate, predator capitalistic policies rather than doing it via the markets route.

Mohamed El-Erian — How the platinum coin could work (or backfire)

Here's how the head of PIMCO sees TPC. (Does occupying that position qualify him as one of the chief bond vigilantes?) Anyway, he views the debt ceiling itself and TPC as indicative of a dysfunctional political system with potentially damaging economic implications in terms of confidence and expectations.

CNN Money | Term Sheet
How the platinum coin could work (or backfire)
Mohamed El-Erian

Did Bill Gross just make the WORST CALL of all time?

“Bond King” (Ha!!) Bill Gross of Pimco is at it again with what could end up to be his greatest BAD CALL of all time.  

Remember last year when he said that Treasuries were going to collapse once the Fed stopped their QE 2 program? And his now infamous tweet, “Who’s going to buy them now?” which exposed his utter lack of understanding of how rates are set. His massive short Treasury position that turned out to be a HUGE loser. (MMT had it right on the money!)  

As an aside, Paul McCulley, who used to be Pimco’s chief economist until two years ago when he retired, understood the monetary system and was probably the brain behind much of Gross’s success because now that he’s gone, Gross is pretty much on the wrong side of everything. But I digress…

Well, here’s Gross’s latest call. In a piece he wrote on the Pimco website he said…  

“The cult of equity is dying.” (Calls equity investing a CULT???? This guy is off the deep end.)

My guess is this could end up to be the greatest bad call since the 1979 Business Week cover that proclaimed “The Death of Equities.” (Even sounds similar.)   Just for fun, have a look at how this whole, "death of equities" thing played out.  

  Business Week August 1979 cover  

                                               























And here's what the market did...  

Bill Gross: "If Europe decides to issue Eurobonds, the rate on Treasuries would spike"

He actually just said this on CNBC.

He said a Eurobond would "siphon demand away from Treasuries."

It's amazing how dumb this guy is.

PIMCO's El-Erian: QE3 Won't Produce The Outcomes We Want

El-Erian: "The Fed does not have enough policy instruments to deal with the challenges facing the economy. They're trying to use communication as an extra tool now. WE have used rates, we have had QE, now you see them using communication, trying to push investors to take on more risk. The problem is two-fold. One is there is disagreement on the FOMC. Secondly, it is not a very effective policy instrument. There are not just limited benefits, but there are also costs and risks. The Fed is in a difficult position. It is trying to be active, but it does not have effective instruments at this stage."

Read it at Zero Hedge (with video)
PIMCO's El-Erian: QE3 Won't Produce The Outcomes We Want

PIMCO sees slow global growth in 2012

PIMCO Cyclical Outlook: Deleveraging, Austerity and Europe’s Potential Minsky Moment

The year ahead will likely be very challenging for the global economy. Growth faces several hurdles that we believe collectively will impose a sense of greater uncertainty and increased volatility on financial markets. These hurdles include the need for accelerated balance sheet deleveraging, slowly creeping but surely rising risks of financial and economic de-globalization, and the constant drum beat of re-regulation, particularly in developed country banking systems.

Read the rest of the PIMCO report by Saumil H. Parikh

PIMCO Cyclical Outlook: Deleveraging, Austerity and Europe’s Potential Minsky Moment

Nice to see Minsky and debt deflation being mentioned, even if briefly.

PIMCO sees the EZ as the focal point in 2012.

Is Pimco about to lose big again?

We know that Bill Gross made a disastrous move shorting US Treasuries earlier this year. It put his fund at the bottom of all bond funds at least in terms of performance.

Bill Gross may be in for another, big loser. That’s because he has been saying for a long time that he is overweight German bonds (and underweight US) because German bonds were “the safest.”

Once again Gross displays a total lack of understanding when it comes to sovereign bonds and sovereign credit: Countries that don’t issue their own currency—like Germany—are INFINITELY more risky than countries that do—like the United States.

That’s because non-currency-issuing nations are credit sensitive. They NEED the money to pay their debt service, etc. Currency issuing nations pay in their own money of issue, so there is NEVER a solvency problem. (Someone please inform the rating agencies of that!)

From what I can determine, Pimco is heavily long German bonds and the German bond market is starting sell off hard now. Take a look at the yield spread between German 10-year bonds and US 10-year Treasuries. Germany yields are now surging above their German counterparts.

Don’t be surprised if you start hearing some more big loss stories coming out of Pimco!

Pimco's equity strategist, Neel Kashkari, wants to leverage the firm's "macoreconomic ability"

Remember Neel Kashkari? He was Hank Paulson's "right hand boy" running the Troubled Asset Relief Program (TARP).

Well, he was hired by Pimco to run their fledgling equities division, where he says...

You're not going to see us launch some plain, old U.S. large cap fund or just tell people to go buy the S&P 500 500," he revealed to the paper. Instead, the Pimco products will leverage the firm's abilities in currenices and macroeconomics to remiove volatility from portfolios based on well-researched stock picking.

That awesome macroeconomic ability sure helped Bill Gross figure out the Treasury market earlier this year, didn't it? Remember their brilliant short bet and "who's gonna buy them now?"

I can't wait to see the performance of Kashkari's portfolio. His current macro view is that interest rates "can't go lower." I guess we can infer from that comment that he means stocks can only go up? Maybe someone should send him a chart of the Nikkei.

Another Goldman "genius" unleashed.

Blather from Mather

Financial repression is any public policy that is designed to influence the market price of financing government debts, either through government bonds or the nation’s currency. Direct methods of repression include things like setting target interest rates, monetizing government debt or implementing interest rate caps. Indirect methods include polices designed to change the amount of debt or currency at a given price. Examples include requirements to hold minimum amounts of government debt on bank balance sheets or establishing minimum requirements for government bonds in pension funds.

Governments may take these steps to improve their ability to finance public debt and forestall more painful adjustment processes, though there can be other motives, and because these methods are less transparent, and thus less controversial, than direct tax hikes or spending cuts. Investors should be wary of financial repression because it is primarily a tool to redistribute wealth from creditors (citizens) to debtors (governments) to the detriment of creditors, fixed income investors and savers....

It is important to realize these methods as practiced are only partially effective and cannot go on forever, as advanced economies continue to add significantly to their public debts despite low financing costs. Some intensification of financial repression, fiscal austerity, or stronger growth must occur to lower the likelihood of a future debt crisis.

Scott A. Mather, PIMCO Economic Outlook, Game Change for Bond Investors?

Note:

1. "Governments practicing financial repression may be transferring wealth from creditors (citizens [bondholders]) to debtors (governments) to the detriment of creditors, fixed income investors and savers [rentiers]."

Bond holders are clearly upset by the prospect that QE3 (if it comes about) will target price instead of quantity, thereby capping interest rates. Fed bond purchases also transfer the interest on those securities to government, reducing the non-government net financial assets that would have accrued.

PIMCO is apparently concerned that Bernanke has figured out how to neuter the "bond vigilantes" by taking control of interest rates along the yield curve, a control that naturally falls to government as the currency monopolist.

2. "It is important to realize these methods as practiced are only partially effective and cannot go on forever, as advanced economies continue to add significantly to their public debts despite low financing costs. Some intensification of financial repression, fiscal austerity, or stronger growth must occur to lower the likelihood of a future debt crisis."

Mather does not seem to get that sovereign debt crisis is an oxymoron for countries like the US that are monopoly providers of a nonconvertible floating rate currency. This also accounts for the hissy fits that Bill Gross has recently been throwing.

Obviously, this will not "go on forever." It is an attempt to turn the economy around, although perhaps a misguided one, or else a hail mary pass since Congress refuses to act fiscally.

But it won't end because "it can't go on forever." The Fed already sets the overnight rate, and there is no contradiction in its setting the yield curve, too.

(h/t Zero Hedge)

Did the "Bond King" just go short at the bottom?

On April 11, "Bond King" Bill Gross of Pimco revealed on CNBC that he was short the Treasury market. It looks like he sold the bottom of the move.



It's not suprising that Gross would get himself in trouble on this. His flawed understanding of our monetary system--where he constantly conflates a household's balance sheet with that of the sovereign government--is a recipe for disaster for a government bond trader. Gross should know better.

Warren Mosler was right about Gross when he said, "He's a better marketer than trader."