Bill Gross Dumps Treasury Holdings from His Total Return Fund to Zero

Uh oh... No QE3?

From Zero Hedge (3/9/2011) [Emphasis is original]:

And many thought Bill Gross was only posturing when he said he is getting the hell out of dodge. Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since. And while we expected that the spike in MBS holdings (at times on margin) was indicative of an expectation that QE3 would monetize mortgage backed securities, the ongoing decline in that asset class now leads us to believe that Bill Gross is now convinced there will be no QE3 at all, at least based on his just putting his money where his monthly pen is! And if Bill Gross, the most connected person to the upcoming actions by the Fed, believes there is no more quantitative easing, it is really time to get the hell out of dodge in all security classes - bonds, and most certainly, equities.

Note the plunge in Treasury holdings in the chart below (blue line), offset by the surge in cash (dotted pink line). Time to panic.

In his Investment Outlook from November 2010 (when QE2 was announced), Bill Gross said "Run Turkey, Run". He was determined that his fund and his investors would not be Thanksgiving turkeys on the platter.

Batten down the hatches...

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PIMCO's Bill Gross: No Way Out for the US

Bill Gross says he has no faith in the US's policy makers, both Democrats and Republicans.

The stock market doesn't care. Dow Jones Industrial jumps 150 points on the strength of Bank of America and a slight easing of oil after Kuwait's oil minister promised they will pump more.

Never mind that Kuwaiti youth groups are protesting for the ouster of the prime minister...

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Massachusetts (Non-Judicial State) Supreme Court Rules Against Foreclosing Banks Due to Faulty Securitization

Or I should say fraudulent securitization, where mortgage-backed securities were issued without any mortgage in the trust to back the securities. Naked shorting, in a sense.

Bank shares (Bank of America, Wells Fargo, US Bank, J.P.Morgan Chase, etc.) promptly headed south as soon as the news broke this morning, though they recovered much of the loss by the market close.

Reuters (among many others) reports:

NEW YORK (Reuters) - In a ruling that may affect foreclosures nationwide, Massachusetts' highest court voided the seizure of two homes by Wells Fargo & Co and US Bancorp after the banks failed to show they held the mortgages at the time they foreclosed.

And from Karl Denninger [emphasis is his]:

The banks tried to get constructive assignment (e.g. assignment by contract, even though the PSAs said otherwise - that actual assignment and delivery had to take place) recognized by the judge, and failed to produce evidence of actual assignment (because there wasn't any - the notes were originally endorsed in blank and there was no evidence of actual physical delivery to the trustee.) The Judge said no. That's what I was talking about earlier in this case - this has been the pattern and practice in these securitized loans, and the ASF and others in the industry have argued that despite language in the PSAs that required physical delivery they didn't have actually perform in that fashion to have a factually and legally-good transfer.

Yup. And the judge said no. Good for the judge.

I'm curious to see if PIMCO has any insight into the matter. PIMCO, as some of you may know, is loaded with MBS which it seems to have bought just so that it can stick them to the issuing banks. Only two days ago, PIMCO's Rod Dubitsky (Executive Vice President, Global Structured Finance Specialist) wrote a piece in yet another attempt by the big players and financial MSM to cast the whole foreclosuregate/fraudclosure as only moderate "flaws" that are easily fixable.

Calling a fraud a flaw doesn't make it a flaw.

But in many states, particularly the non-judicial states, foreclosures go on uncontested (no easy way for the homeowners to contest anyway), banks getting the homes that they probably don't have title to. Judges are asleep, attorneys either don't know or don't care.

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Putbacks! And So It Has Begun ...

to paraphrase Karl Denninger...

So "the holders of over 25% of the Voting Rights in more than $47 billion of Countrywide-issued RMBS" from yesterday's post about the link at Market Ticker turn out to be PIMCO, the Federal Reserve Bank of New York, Blacklock, and MetLife.

New York Fed??

Pimco, New York Fed Said to Seek BofA Repurchase of Mortgages
(10/19/2010 Bloomberg)

Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.

The bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service the loans properly, their lawyer said yesterday in a statement that didn’t name the firms.

That "statement" yesterday is this.

So that's why PIMCO's Bill Gross has been buying MBS on the margin...

But New York Fed?? I guess they are very worried about the $1.2 trillion "worth" of MBS that the Fed carries on the balance sheet.

And why Countrywide? Maybe the plea bargain by Angelo Mozilo the other day has something to do with it... Some good info from Angelo to avoid jail time, maybe.

Bear Stearns, Lehman Brothers. Marked for dead. Now Bank of America?

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Zero Hedge: Gross, El-Erian Rumored Replacements For Larry Summers

Of all people....

Gross, El-Erian Rumored Replacements For Larry Summers
(Tyler Durden, 9/28/2010 Zero Hedge)

"Rumor making rounds now that either of Pimco's top two men could replace the man who destroyed Harvard's endowment. Should either of these two be forced to quit Pimco, it would mean that QE would have to be massive to make sure that the Fed is a backstop of last reserve in case the next head of Pimco is unable to replicate his predecessor's success."

I bet it would be El-Erian. He was the president of the Harvard Endowment and quit just in time before the investments blew up. I'm sure he can hop out right before the US finally collapse, on his way back to the IMF where he was a deputy director, so that he can blow up the entire world.

But in between, either Gross or El-Erian may be able to make a sh-tload of money for the government by trading the government money with high leverage. 33 Liberty had better watch out...

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PIMCO's Bill Gross: Real Estate Could Beat Stocks, Bonds

PIMCO's Bill Gross says both residential and commercial real estate markets are reaching a bottom, and may be a better bet than stocks and bonds.

He is the one (I think) who started the "new normal" concept to describe the new, post-crisis economic and financial reality of low growth and low return. He was also the first one to call on the federal government to support mortgage-backed securities issued by Fannie Mae and Freddie Mac. The government did, to whom Mr. Gross sold his vast holdings that he had amassed. I believe he did the same with his Treasury securities holding.

(His monthly Investment Outlook on PIMCO's site is well worth reading, by the way. On this blog I have a link to PIMCO's market commentary page under "Market / Economic News, Analysis, Commentary" section - scroll down the left column.)

When he says something, I listen, as he always seems to be one step ahead of everyone else when it comes to investment.

Real Estate Could Beat Stocks, Bonds: Gross (4/15/2010 CNBC)

"Real estate is nearing a bottom and eventually could be a better bet for investors than stocks or bonds, Pimco's Bill Gross told CNBC.

"Both commercial and residential real estate are reaching a bottoming point and possibly even prepared to turn higher, said Gross, CIO of Pacific Investment Management Co., or PIMCO, the world's largest bond fund.

"With stocks likely to return 5 to 6 percent and bonds 3 to 4 percent, he said, investors would be wise to start looking at real estate opportunities.

""Ultimately the riskier assets will be the less the risky assets," he said. "I wouldn't suggest moving into those particular sectors at the moment but ultimately risk and reward go together."

"Lower debt and better lending rates will make real estate attractive, he added." [The article continues.]

However, when he says publicly that the real estate market is poised for better return, he has probably invested in real estate at a very attractive price and he is quite ready to sell it to you.

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Pimco Is Missing From Treasury's PPIP

The U.S. Treasury Department, the Federal Reserve and FDIC announced the start of the Public-Private Investment Program, commonly known as PPIP, yesterday.

Other than the drastic shrinkage of the whole scheme from $1 trillion when it was announced in March to mere $40 billion (the government putting in $30 billion, private investors $10 billion), curiously missing was the world-largest bond manager, Pacific Investment Management Co., commonly known as Pimco.

Here's from Bloomberg:

U.S. Treasury Opens Distressed-Debt Program Without Pimco (7/9/09 Bloomberg)

"The U.S. plan to help buy as much as $40 billion in assets from banks got started almost four months after it was proposed and without Pacific Investment Management Co., the world’s biggest bond manager and an early supporter."

"... Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the initiative’s design."

Other than that, Bloomberg or Pimco doesn't elaborate on the reason why Bill Gross' s firm decided to withdraw.

Pimco manages $756 billion in assets. It is possible that the scaled-back PPIP program is too small for them to participate. But it is also possible that Mr. Gross doesn't quite trust the government. I remember reading this at Pimco's site back in early April [emphasis is mine]:

"Shake hands with the government is and has been our motto although the contractual certainty of a government handshake may now be questioned in an increasingly number of marginal areas."

This is a change of tone coming from Mr. Gross. This is the guy who said back in January;

"Still, future policymakers must confront the reality that is, not the one that should have been. And investors must do likewise, casting aside personal philosophies for a clear-headed view of the future horizon. PIMCO’s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks, and senior bank debt; Aaa asset-backed securities such as credit card, student loan, and auto receivables. These have been well-advertised PIMCO strategies over the past 6 months but there are others in clear sight. An Obama administration will quickly be confronted by the need to provide those hundreds of billions of dollars to states and large municipalities. Their requests total nearly a trillion dollars and to think California or NYC would be allowed to fail is, well – unthinkable. Municipal bonds then, selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2½% 10-year Treasury cannot."

And I believe his firm was extremely successful in doing it - buying these securities before the government did, and sell them essentially to the government at higher prices.

Now, after seeing what this new government under the new president has done so far, Pimco would rather stay away, at least for now.

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