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Money News: Bill Gross – stock market euphoria premature

“Bond fund guru Bill Gross, founder of Pimco, is worried that the recent rally in equity and credit markets is premature. The continuing catastrophe in the housing market may drag down Wall Street once again, he warns.

“In a research note, Gross said the short-term stock market recovery is primarily due to federal policy moves to restore liquidity. Investors, too, seem to have bet on an overly optimistic view that the market has hit bottom and that banks are recapitalizing.

“It won’t last long, Gross warns. ‘Recession, and its vicious-cycle effect on employment and consumer spending, remains a threat,’ Gross says.

“In fact, real economy downturns often follow financial market corrections, since stocks lead the economy by as much as a half year. As a result, it’s too early to write off the slowdown, Gross says.

“‘This recession, though currently mild, and, as of yet, not even officially validated, may not be your garden-variety, father’s-Oldsmobile type of downturn.’

“Home prices, for instance, fell by nearly 13% nationwide, according to the most recent S&P/Case Shiller index. Its founder, Yale Professor Robert Shiller, sees as much as a 30% total decline before things turn around.

“The impact of such continuing asset devaluations on the economy would be ‘disastrous’, said Gross.”

Source: Money News, May 5, 2008

Greenspan Helped Pimco Make Billions, Gross Says
By Sree Vidya Bhaktavatsalam


May 21 (Bloomberg) -- Alan Greenspan, former Federal Reserve chairman, has helped Pacific Investment Management Co. make ``billions of dollars'' as consultant, said Bill Gross, the co- chief investment officer of the world's biggest bond manager.

During a 30-minute discussion on banks several months before the global credit crisis, Greenspan's ``brilliance in terms of forecasting the potential for exactly what happened was a big money saver for us,'' Gross said yesterday at a conference organized by the Asia Society in Los Angeles. ``He's made and saved billions of dollars for Pimco already.''

Ben S. Bernanke, Greenspan's successor as head of the Fed, has slashed U.S. interest rates seven times since September, to 2 percent, to prevent a housing market collapse from dragging the world's largest economy into recession. Treasuries gained from July through March, the longest rally since 2000, according to an index compiled by Merrill Lynch & Co., as investors sought the relative safety of government debt.

Greenspan cut the Fed's benchmark interest rate to 1 percent in June 2003, the lowest since 1958, and kept it there for a year.

``He bears some responsibility for the subprime problem,'' said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., a unit of Japan's second-largest brokerage. ``If he had been faster to hike rates, it wouldn't be so severe. The Fed is also responsible for banks, who lent to people who should not have been buying.''

Cryptic Orator

Defaults of subprime mortgages in the U.S. have triggered a worldwide credit crunch, with banks and financial institutions facing more than $380 billion in writedowns and losses related to bad debt. The Merrill Lynch index has returned 6.6 percent since the Fed's first cut on Sept. 18.

Since retiring as head of the Fed in January 2006 after 18 years, Greenspan signed on in May last year as consultant to Newport Beach, California-based Pimco, which manages more than $800 billion in assets. He is also an adviser to hedge-fund firm Paulson & Co.

Greenspan guided the U.S. economy through its longest expansion and became known for often-cryptic congressional testimony and phrases such as ``irrational exuberance'' that shook up global markets.

Emerging Market Debt

Gross anticipated the collapse of the U.S. housing market and the Fed's subsequent interest-rate cuts. He shunned riskier corporate debt in 2006, a call that caused his fund to lag behind peers. Gross's $128 billion Total Return Fund slipped as much as 4 percent in the first half of 2006.

The decision to sidestep subprime-linked debt has helped the fund surge 12 percent in the past year to beat 95 percent of its rivals, according to data compiled by Bloomberg.

Earlier this year, Gross started piling back into mortgage loans to take advantage of slumping prices. In April, he lifted his holdings in mortgage-related debt to the highest since 2000, and lowered his stakes in U.S. Treasuries after calling them ``overvalued.''

As of April 30, Gross's Total Return Fund held 65 percent in mortgage debt, according to data posted on the firm's Web site. The fund also holds 6 percent of assets in emerging market debt. This year, Gross's Total Return Fund has returned 4.1 percent, beating 94 percent of peers, Bloomberg data show.

``You want to invest where the growth is,'' Gross said yesterday. ``The growth is in Asia and the growth is outside the United States.'' To be invested in U.S. fixed income is to be ``at a disadvantage twice,'' he said.

Pimco is a unit of Munich-based insurer Allianz SE

INTELLIGENCE: (USD) PIMCO's Gross: Fed fund still in neutral stance

(USD) PIMCO's Gross says the Fed fund is still in neutral stance. He expectsFed Funds target rate to be still at 2% in December and core inflation willcome down in the next 12 months-CNBC.

He prefers 2 yr swaps to 2 yr treasurynotes under a 'do nothing Fed'. Longer end treasury yield curve remains at risk of levered borrowers cutting duration.

INTELLIGENCE: (USD) Gross: Recession & asset defl prevent Fed hike

(USD) PIMCO's Gross says Fed is concerned with lower growth and concerns about Fed raising rates are almost comical.

Recession and asset deflation will prevent the Fed from raising rates-CNBC

When Bill Gross speaks, it is good to listen in

http://www.pimco.com/LeftNav/Featured+M ... Market.htm

Have better step aside as even the best of the best cannot time this market:

Pimco’s Gross takes a hit
The panic sweeping Wall Street Wednesday meant bond manager Bill Gross followed his best day ever with one of his worst. Gross’ Newport Beach, Calif.-based Pimco Total Return fund lost 1.4% Wednesday, Reuters reported, in the fund’s worst performance in three years. The drop came as investors sold shares of Morgan Stanley (MS) and Goldman Sachs (GS) along with other risky assets in the latest flight to the safety of Treasury bonds. Yields on three-month Treasury bills sank to the lowest since World War II, Bloomberg reported.

The Pimco drop comes a day after the government agreed to lend as much as $85 billion to prop up insurer AIG (AIG) in hopes of defusing market fears. It didn’t work, judging by the $90-an-ounce rise in the price of gold and the surge in the Chicago Board Options Exchange Volatility Index, which hit its highest closing level since October 2002.

The reversal is noteworthy because Gross and Pimco had feasted on an earlier bailout, the nationalization earlier this month of Fannie Mae (FNM) and Freddie Mac (FRE). Pimco Total Return jumped 1.3% on Sept. 8, outperforming its benchmark by 51 basis points, prompting Gross to tell Reuters the fund had had “its greatest one day relative performance (compared to our index) in its history.” It was nice while it lasted.

After the fear comes the paralysis : PIMCO's Bill Gross said "No1 is trading":

The banking system needs another $500 billion to survive beyond the $700 billion rescue plan being contemplated by Congress, said Pimco founder Bill Gross.

Gross said on CNBC that the government bailout plan will help free up bank balance sheets so they can start lending again, but will provide only about $50 billion in real capital to the system.

"The plan goes far but it doesn't go far enough in terms of recapitalization," he said. "The banking system and the investment banking system in total really requires about $500 billion more. Where that comes from is still up in the air."

The Federal Reserve will need to step in to quell fears of counterparty risk—the worry that one partner in a deal won't hold up its end--and provide assurance that it will be a clearinghouse to make sure transactions get done, Gross said.

"There's a lack of trust anywhere in terms of other counterparties," he said. "The Fed to a certain extent has to assume this level of counterparty risk. It has to be a clearinghouse. Otherwise things don't get done."

On the economy, he predicted tough sledding in 2009, with an unemployment rate of 7 percent that he called "not tragic but certainly not good for the millions of Americans who are going to be out of jobs."

Gross supports the bailout proposal but said the government will find itself with more work to do.

"We're all in favor of this program," he said. "We've advocated it. To suggest otherwise is something I shouldn't do, but I think there are additional steps that need to be taken down the road."

Pimco's Gross says he is raising cash and waiting: CNBC

NEW YORK (Reuters) - The manager of the world's biggest bond fund said on Friday he is raising cash and waiting for asset prices to become more appealing.

Bill Gross, chief investment officer of Pacific Investment Management Co. or Pimco, said he was raising cash for a time when prices are attractive enough.

Speaking on CNBC television shortly after the U.S. House of Representatives approved the Bush administration's $700 billion financial rescue package on Friday, Gross said the problem plaguing the financial markets lies not necessarily in the mortgage market now but in the credit markets.

Perhaps the market will be spooked by his comments & he can buy.

Well, the truth is :

Oct. 3 (Bloomberg) -- Treasury Secretary Henry Paulson is hiring as many as 10 asset-management firms to join the lawyers and bankers he is recruiting to jumpstart the government's new $700 billion bank-rescue program.

The Treasury began implementing the plan within an hour of the House of Representatives vote giving Paulson the extraordinary powers he had sought to combat the U.S. financial crisis. Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to arrange purchases.

``This is something that, for a typical company, would take no less than five years,'' said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. ``Anyone who thinks they can do this in two weeks is insane.''

Already, BlackRock Inc., Pacific Investment Management Co. and Legg Mason Inc. are seeking to become money managers for the program, people familiar with the matter said. The three firms have been informally advising the Treasury as it negotiated the bailout package with Congress, the people said.

Actually, I've always found the capital market more difficult to understand than the equity market. After this horrible mess, I now know WHY