The most famous bond manager in the world, Bill Gross of Pimco, is calling for the government to engage in a wide-ranging bailout of housing assets. In a noteposted on the Pimco Web site today, Gross paints a dire picture of a financial system caught up in a runaway delevering and concludes that the Treasury must not only bailout Fannie and Freddie but subsidize housing more generally.
And now, while some will compare current government bailouts to Slick Willie, citing moral hazard, near criminal regulatory neglect, and further bailouts for Wall Street and the rich, common sense can lead to no other conclusion: if we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury - not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions.There's a Bull Market Somewhere? [Pimco via Fortune]
Posted by american bandersnatch , Sep 04, 2008 12:13PM
Nice headline. Would a Shamwow! clean up one of those extra outs?
Posted by ab , Sep 04, 2008 12:13PM
gross and his big head need to STFU.
Posted by guest , Sep 04, 2008 12:18PM
jim cramer redux. any juxtaposition of this and the "ben bernanke doesn't get it, i'm calling the bottom ex-post facto" cry?
Posted by guest , Sep 04, 2008 12:26PM
"a fresh and substantial new source of buying power is required"
I call for another Baby Boom via mass orgies.
Posted by guest , Sep 04, 2008 12:36PM
He did predict Dow 5,000 so this too will happen as he has foreseen. Nothing like yelling default on a crowded trading floor to help his existing positions.
Posted by guest , Sep 04, 2008 12:38PM
Can anyone scream "I'm Talking My Book" louder than Mr. Gross. I don't think so. I hope the federal government doesn't back fnm & fre paper so that this emperor will be found to have no clothes.
Posted by guest , Sep 04, 2008 12:41PM
I say we lower margin requirements to 1920's levels for retail accounts. $1000 account would have, say, $100K in bp. This would help to at least get us out of this bubble and onto the next.
Posted by guest , Sep 04, 2008 12:45PM
sounds like Bill is long Freddie and Fannie
Posted by guest , Sep 04, 2008 12:51PM
"...Bill is long fannie and freddie."
Duh. And so is every other FI manager on the planet. That's why they have to be bailed out and that's why they're gonna get bailed out.
Isn't it obvious?
Posted by pdtrading , Sep 04, 2008 12:55PM
C'mon, Billy, just come out and say it: you want Uncle Sam to bail out your up-to-it's-ass-in-trouble portfolio.
Posted by guest , Sep 04, 2008 1:08PM
Gross needs to shut up and get back on hi yoga mat - hippie
Posted by guest , Sep 04, 2008 1:10PM
Why do so many people at Pimco have seventies style mustaches?
Posted by guest , Sep 04, 2008 1:18PM
that dude got the zap put on his brain back in 'nam, and now he just can't shut his fukkin yap
Posted by guest , Sep 04, 2008 1:20PM
his squeaky voice indicates to me he is getting his ballllss viced
Posted by guest , Sep 04, 2008 1:22PM
Hey, I heard that Bill Gross uses tons of Mayo. Can anyone verify that?
Posted by guest , Sep 04, 2008 1:23PM
#1 kudos great stuff!! you watch everyone will come to the Sham-wow sooner or later. Sincerely Vince Offer.
Posted by guest , Sep 04, 2008 1:25PM
Too long, didn't read.
Posted by Anal_yst , Sep 04, 2008 1:26PM
I wish one of the guys/gals on CNBC had the cajones to call Gross out on his BS.
Ahhh, the beauty of annonymous quasi-journalism haha
Posted by guest , Sep 04, 2008 1:26PM
dow 5000
Posted by guest , Sep 04, 2008 1:26PM
I read that Vince Offer is going to work for PIMCO.
Posted by FUNdamental , Sep 04, 2008 1:34PM
@anal - I wish one of the guys on cnbc (non gaspsrino edition) had cajones at all.
Posted by guest , Sep 04, 2008 1:36PM
right on #2, Gross sux! Touters suck...at least T. Boone admits he's touting for his own good and that it will also help the country as a whole; not the reciprocal.
Posted by guest , Sep 04, 2008 1:44PM
seriously, in 2002, johnny wadd gross predicted dow 5000
Posted by guest , Sep 04, 2008 1:58PM
JMK would be proud!
Posted by Investorcluzo , Sep 04, 2008 2:08PM
doesn't gross run a bond fund? why is he always talking equities?
the bailout of fnm and fre is coming; but if bill's a smart guy (like everyone says he is), he'd be holding senior notes from fnm and fre (not the equity). if he's holding preferreds, he's making a very risky bet with all those widows' and orphans' money (who thought they were in simple fixed income securities).
question: wasn't it the government's goal of putting every american in a house the reason we got into this mess in the first place (loose/no lending standards, ect)? why does billy boy suggest another handout now - won't that just put us back in the same place several years out?
Posted by guest , Sep 04, 2008 2:14PM
"(loose/no lending standards, ect)? "
I believe those are private-sector issues.
Posted by guest , Sep 04, 2008 2:16PM
very responsive, DB, to your readers, on this Bill Gross thing.
He sounds like TBoone on windmills, doesn't he?
It's gotta be the stress of sitting a big portfolio.
Whatever it is, the motives of a loudmouth are to skeptically scrutinized, ALWAYS.
Posted by guest , Sep 04, 2008 2:16PM
to BE skeptically scrutinized, of course.
Posted by guest , Sep 04, 2008 2:17PM
#9 no you jackass- it is not obvious. the reason for the bailout has to do with the integrity of our banking system and the role that the GSE's play in that. Let me guess- you are an equity guy??
Posted by guest , Sep 04, 2008 2:38PM
somebody's short two-years...
Posted by guest , Sep 04, 2008 2:44PM
Gross needs to take his porn star mustache and SUCK ON IT. I hope his ass loses it all.
If everyone gets bailed out, then risk will be obsolete and we'll all get rich right?
Right??
Posted by guest , Sep 04, 2008 3:22PM
When germany talks, PIMCO talks.
Posted by Debter , Sep 04, 2008 3:26PM
@cluzo, he's not talking equities, he's long the debt. If FRE and FNM go under, truly go under, they will seek bankruptcy and Bill gets no more debt service payments (along with, as previously mentioned, 90% of FI managers in the world). Big brother will step in on this after the election, they'll wipe the equity, prob most of the preferred and protect the bond holders.
Posted by guest , Sep 04, 2008 3:42PM
@ 30 you mean *long* two-years. he wants 'em to go up.
Posted by guest , Sep 04, 2008 3:45PM
you guys are idiots not to listen to Gross... He's arguably the greatest bond man of our time...and he's made more betting on his opinion then anyone here has
how much OPM do you manage?
ahhh why bother...
Posted by guest , Sep 04, 2008 4:13PM
The greatest bond man of our time? What, he couldn't tell he was buying shitty debt? The heart bleeds, really it does.
Posted by Anal_yst , Sep 04, 2008 4:25PM
All he's doing is blackmailing the Gov't into bailing his ass out. When you sit on how many hundred billion of garbage debt, owned by how many households (directly or indirectly), if the Gov't f*cks you, they're f*ckcing themselves (so long as they'd like to stay in office or get re-elected)
Posted by diablo , Sep 04, 2008 4:58PM
Gross is calling Paulson's bluff. Isn't that clear?
Posted by guest , Sep 04, 2008 5:51PM
@26
the problem is that the private sector activity inflated an asset (housing) that the govn't sponsored entities financed a fixed % of the "value" on.
So, say FRE made/bought a loan on a house in San Diego in July 2007 for $200,000 on a $250,000 purchase price. Since housing prices have fallen 30-35% on this type of asset, the loan is out $25-$37.5k, or 81 to 87 cents on the dollar (before another 5-7 cent loss on workout costs).
Unfortunately, in addition to "owning" these "assets" FRE/FNM provided guarantees for insurance premiums that amount to 1 or 2 cents on the dollar, which they will now have pony up on.
Right now, they have the whole economic statistic establishment is busy churning out aggressive numbers (and then revising them down the next month) in hopes that people are going to pick up their mattresses and take money to the bank to buy these $hit stocks so that the economy will just fix itself without action. This is commonly referred to as denial.
It is ***NEVER*** too late to short FRE/FNM.
I can't wait to see the piper get paid. Gonna start a revolution from my bed...
Posted by guest , Sep 04, 2008 6:07PM
@35 - you perpetual douche machine...pimco total return (his flagship fund) can't even beat it's benchmarks...he's the greatest bond fund marketer of all time i give you that
Posted by guest , Sep 04, 2008 11:21PM
@39 - Thanks for your informative comments.
So with the value of the underlying collaterals down 30-35% and mortgage payments not flowing through to the servicers, will it be accurate to say that these CDO's have lost all their value except the super senior tranches?
I see in the recent Merrill-Lone Star deal that Lone Star put up less than 25% of their own cash to acquire a parcel of seniorish CDO's at about 22 cents on the dollar.
Could you shed some light on the current valuation of the formerly AAA or AA super senior tranches CDO's? What are the mechanics of the valuation process? How much value have they lost?
I know Pimco picked up some sizable chunks of municipal and mortgage-related debt when some hedge funds could not post margin earlier this year.