Showing posts with label PIMCO. Show all posts
Showing posts with label PIMCO. Show all posts
Friday, October 09, 2015
Monday, September 29, 2014
Financial Sarcasm Roundup for 09/29/14
Do you remember the last time I published something sarcastic? If not, go back through my most recent blog articles.
Iron ore prices are heading down harder than ever as the leading low-cost producers force smaller competitors out. Anyone who still buys the endless China bull story in the face of rising iron stockpiles is welcome to head down the tubes along with shuttered mining companies. The remaining big producers will have no problems staying in business as market leaders. Their pricing power should enable them to grab failed mines and grow their reserves.
Bill Gross' departure from the bond firm he founded caught major players by surprise. I am not at all surprised. He exited his firm on a high note as the US bond market remains at nosebleed valuations. Seeking contrarian opportunities at a smaller firm enables him to build a new reputation after the bond market begins its inevitable slide. Other company founders should remember that a firm they create is no longer theirs once larger investors steer it away from its roots.
I do track the "fin-tech" culture where financial startups launch. A lot of them are focused on payments processing but there's only so much blood to squeeze from that stone. These same startups will be among the many that vaporize (borrowing a word from one very prominent VC) because they can't reduce their burn rates. I'll be in the market for some very cheap IP when these fin-tech darlings are on the street begging for spare change. I'm certain I can figure out how to deploy their leftover tech after a bankruptcy court chops them up.
Catch me at Oracle OpenWorld this week if you want my sarcasm in person. I have little time to spare while attractive women pursue me on the expo floor but I always have something cool to say.
Iron ore prices are heading down harder than ever as the leading low-cost producers force smaller competitors out. Anyone who still buys the endless China bull story in the face of rising iron stockpiles is welcome to head down the tubes along with shuttered mining companies. The remaining big producers will have no problems staying in business as market leaders. Their pricing power should enable them to grab failed mines and grow their reserves.
Bill Gross' departure from the bond firm he founded caught major players by surprise. I am not at all surprised. He exited his firm on a high note as the US bond market remains at nosebleed valuations. Seeking contrarian opportunities at a smaller firm enables him to build a new reputation after the bond market begins its inevitable slide. Other company founders should remember that a firm they create is no longer theirs once larger investors steer it away from its roots.
I do track the "fin-tech" culture where financial startups launch. A lot of them are focused on payments processing but there's only so much blood to squeeze from that stone. These same startups will be among the many that vaporize (borrowing a word from one very prominent VC) because they can't reduce their burn rates. I'll be in the market for some very cheap IP when these fin-tech darlings are on the street begging for spare change. I'm certain I can figure out how to deploy their leftover tech after a bankruptcy court chops them up.
Catch me at Oracle OpenWorld this week if you want my sarcasm in person. I have little time to spare while attractive women pursue me on the expo floor but I always have something cool to say.
Monday, June 02, 2014
Financial Sarcasm Roundup for 06/02/14
Read my words and discover the contempt I have for humanity. Stupid losers are everywhere. They deserve nothing but my sarcasm.
Pimco's Total Return Fund is watching investor withdrawals whittle away its flagship product. The trickles will turn to a deluge as investors realize the air is leaking out of the bond market bubble. Chair Yellen can keep the plates spinning a while longer if the Fed has to restart QE purchases. Everyone in the fixed income universe forgot about mean reversion while the fixed income party was going full steam.
The Administration's emission rules are going to put the coal sector in a world of hurt. Climate change advocates have a religious fervor for reengineering our society, with or without a scientific basis. The only thing dumber than blind faith in weak science is forcing others to pay for those beliefs. Renewable energy stocks may get a small push from new rules on power plant emissions. I doubt the Administration's push to convince other polluting countries in the developed world will bear fruit. US coal companies will just export to China and India if the coal can't be burned domestically, and those nations will have no incentive to cooperate with US climate goals if they would otherwise lose access to our coal. Way to go, Washington.
Ecuador is swapping gold for liquid assets, presumably some instruments denominated in US dollars. Goldman Sachs took them to the cleaners and all the Ecuadoreans can do is lie about the deal. It's obviously an asset swap but Ecuador's finance ministry and central bank both refer to it as an investment. They must think the global financial community is as stupid as their own citizenry. This swap only works for them if the US dollar retains its value for three years, a highly doubtful prospect if the US experiences hyperinflation. A dollar devaluation means they'll only get back a fraction of the gold they're swapping out. Goldman and other banks now have a case study they can use to liberate hard assets from other dollar-dependent countries before the party ends. I'll remember that the next time I'm stocking up on stuff.
Humans run around like chickens with their heads cut off. I exist to collect up the headless chickens and cook them for supper. The brainless losers who don't read my blog might as well be headless.
Pimco's Total Return Fund is watching investor withdrawals whittle away its flagship product. The trickles will turn to a deluge as investors realize the air is leaking out of the bond market bubble. Chair Yellen can keep the plates spinning a while longer if the Fed has to restart QE purchases. Everyone in the fixed income universe forgot about mean reversion while the fixed income party was going full steam.
The Administration's emission rules are going to put the coal sector in a world of hurt. Climate change advocates have a religious fervor for reengineering our society, with or without a scientific basis. The only thing dumber than blind faith in weak science is forcing others to pay for those beliefs. Renewable energy stocks may get a small push from new rules on power plant emissions. I doubt the Administration's push to convince other polluting countries in the developed world will bear fruit. US coal companies will just export to China and India if the coal can't be burned domestically, and those nations will have no incentive to cooperate with US climate goals if they would otherwise lose access to our coal. Way to go, Washington.
Ecuador is swapping gold for liquid assets, presumably some instruments denominated in US dollars. Goldman Sachs took them to the cleaners and all the Ecuadoreans can do is lie about the deal. It's obviously an asset swap but Ecuador's finance ministry and central bank both refer to it as an investment. They must think the global financial community is as stupid as their own citizenry. This swap only works for them if the US dollar retains its value for three years, a highly doubtful prospect if the US experiences hyperinflation. A dollar devaluation means they'll only get back a fraction of the gold they're swapping out. Goldman and other banks now have a case study they can use to liberate hard assets from other dollar-dependent countries before the party ends. I'll remember that the next time I'm stocking up on stuff.
Humans run around like chickens with their heads cut off. I exist to collect up the headless chickens and cook them for supper. The brainless losers who don't read my blog might as well be headless.
Saturday, August 31, 2013
Bond Investors Should Not Chill Out At All
CNBC allows PIMCO to give us three reasons why bond investors should "chill out" and stop worrying. I'll give the folks at home three reasons why I'm not a bond investor.
1. Economic fundamentals don't support much of anything anymore. Go back to my article in June 2013 about the BIS study showing every asset market in the developed world pushed up by central bank monetary stimulus. Consumer spending is 70% of GDP, higher than ever in history, and it has to come down eventually. Government spending is higher than ever and has to come down eventually. If federal spending comes down after a hyperinflationary period, bond investors are toast.
2. Inflation is definitely coming back. People who haven't read Shadow Government Statistics don't realize that inflation is already here. Compare your grocery bill to what you paid last year, especially for energy-intensive staples like meat and bread.
3. Investors always misread the Fed. This is because many US investors haven't lived through hyperinflationary periods. The necessary precursors for such an episode are in place: a liquidity trap, government borrowing crowding out private borrowing, and political unwillingness to curtail government spending.
Bond gurus who assume that tapering QE won't require a higher Fed funds rate miss the boat. Any tapering will raise real rates by lowering the market value of existing bonds. Bond investors have no reason at all to chill out now that the bond market bubble awaits its pinprick.
1. Economic fundamentals don't support much of anything anymore. Go back to my article in June 2013 about the BIS study showing every asset market in the developed world pushed up by central bank monetary stimulus. Consumer spending is 70% of GDP, higher than ever in history, and it has to come down eventually. Government spending is higher than ever and has to come down eventually. If federal spending comes down after a hyperinflationary period, bond investors are toast.
2. Inflation is definitely coming back. People who haven't read Shadow Government Statistics don't realize that inflation is already here. Compare your grocery bill to what you paid last year, especially for energy-intensive staples like meat and bread.
3. Investors always misread the Fed. This is because many US investors haven't lived through hyperinflationary periods. The necessary precursors for such an episode are in place: a liquidity trap, government borrowing crowding out private borrowing, and political unwillingness to curtail government spending.
Bond gurus who assume that tapering QE won't require a higher Fed funds rate miss the boat. Any tapering will raise real rates by lowering the market value of existing bonds. Bond investors have no reason at all to chill out now that the bond market bubble awaits its pinprick.
Tuesday, May 14, 2013
Thursday, April 07, 2011
Mall Vacancies At Dot-Com Crash Levels
Check out just how badly commercial real estate is faring in this so-called recovery:
I guess all of those job seekers who've left the workforce (according to the government's figures citing an "improving" job picture) shouldn't waste time sending resumes to mini-mall owners. The U.S. hasn't seen vacancy rates like those since the dot-com recession of 2000-2002 or so. Developers built too many mini-malls in unsustainable exurban areas that will someday be farmland again.
This kind of market is terrific for investors seeking bargain properties but horrible for mortgage note investors. Note holders will be left holding the bag if mall owners default. PIMCO doesn't agree and intends to launch a REIT focused on CMBS. That may be the wrong move in this environment. Instead of throwing my money at PIMCO, I'd rather watch the foreclosure listings in my area to see if any desirable properties are coming up for auction.
Nota bene: No positions in real estate or PIMCO products at this time.
Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.
I guess all of those job seekers who've left the workforce (according to the government's figures citing an "improving" job picture) shouldn't waste time sending resumes to mini-mall owners. The U.S. hasn't seen vacancy rates like those since the dot-com recession of 2000-2002 or so. Developers built too many mini-malls in unsustainable exurban areas that will someday be farmland again.
This kind of market is terrific for investors seeking bargain properties but horrible for mortgage note investors. Note holders will be left holding the bag if mall owners default. PIMCO doesn't agree and intends to launch a REIT focused on CMBS. That may be the wrong move in this environment. Instead of throwing my money at PIMCO, I'd rather watch the foreclosure listings in my area to see if any desirable properties are coming up for auction.
Nota bene: No positions in real estate or PIMCO products at this time.
Monday, September 28, 2009
Sunday, July 12, 2009
The New Normal Is For You, Me, and Everyone
The Sovereignty Crunch is going to change life as we know it in the United States. Most Wall Streeters are in denial because they want the good times to come back. Some financial professionals are able to make the appropriate psychological transition:
Of course, macroeconomic pessimism helps talk down equity prices, which is usually good for a bond book like PIMCO's. Nevertheless, the new normal will be a permanently lower standard of living for most Americans. People under 40 have very little idea of just how much they'll have to cut back. In a country with less well-developed democratic traditions such unpleasantness would be a pretext for civil unrest. We're Americans, so we're supposed to be better than that.
While unemployment will peak between 10.5 percent and 11 percent in the U.S., it will remain high and stay above 7 percent, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., manager of the world’s largest bond fund.
“The United States right now is in transition,” El-Erian said in an interview from Pimco headquarters in Newport Beach, California. “It’s coming out of one regime. It’s on this bumpy and painful journey to what we’ve called here the new normal.”
Of course, macroeconomic pessimism helps talk down equity prices, which is usually good for a bond book like PIMCO's. Nevertheless, the new normal will be a permanently lower standard of living for most Americans. People under 40 have very little idea of just how much they'll have to cut back. In a country with less well-developed democratic traditions such unpleasantness would be a pretext for civil unrest. We're Americans, so we're supposed to be better than that.
Thursday, February 05, 2009
A "Gross" Amount of Spending
Bill Gross is demanding an even larger fiscal stimulus package:
Here's Mr. Gross' hidden agenda. New spending will require bond issues in such massive quantities that only the Fed's money-creation power can clear the market of supply. Without such buying power supporting the bond market, the equilibrium price of Treasuries would collapse to a much lower market-clearing price. Much of PIMCO's asset base would collapse along with it, angering a lot of conservative investors who like the fact that most of PIMCO's funds have been doing very well this year.
I for one do not endorse hyperinflating the U.S. economy just so Allianz and PIMCO can protect their Total Return Fund's 99th percentile ranking. Whenever someone in high finance demands that the government do something, always ask yourself how they would benefit.
Nota bene: Anthony J. Alfidi does not own any PIMCO funds. He prefers to buy bonds individually and hold them until maturity as portfolio diversifiers.
“This economy needs support from the government, a check from the government in the trillions,” Gross said today in a Bloomberg Television interview from Pimco’s headquarters in Newport Beach, California. “There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.”
Here's Mr. Gross' hidden agenda. New spending will require bond issues in such massive quantities that only the Fed's money-creation power can clear the market of supply. Without such buying power supporting the bond market, the equilibrium price of Treasuries would collapse to a much lower market-clearing price. Much of PIMCO's asset base would collapse along with it, angering a lot of conservative investors who like the fact that most of PIMCO's funds have been doing very well this year.
I for one do not endorse hyperinflating the U.S. economy just so Allianz and PIMCO can protect their Total Return Fund's 99th percentile ranking. Whenever someone in high finance demands that the government do something, always ask yourself how they would benefit.
Nota bene: Anthony J. Alfidi does not own any PIMCO funds. He prefers to buy bonds individually and hold them until maturity as portfolio diversifiers.
Wednesday, November 26, 2008
Fixed Income Bond Funds Might be as Dumb as ETFs
I'd like to continue my train of thought from yesterday about the difficulty of using instruments like ETFs to actively manage exposure to the bond market. BTW, I may not have been clear in my post yesterday that potential exposure to additional volatility through FI ETFs would come from hedge funds and individual investors who actively trade these instruments. Such volatility would less likely originate with the trading activity of the ETFs' fund management companies (BGI, SSgA, etc.) because their corporate size gives them the ability to buy bonds in bulk to fit their products' maturity ranges.
Anyway, let's see what happens when fund management companies offer actively managed bond funds, rather than ETFs. PIMCO stated today that one of its muni bond vehicles may have trouble delivering dividends to its investors:
The fund's stated objective is to provide current income; failure to make a dividend payment means it has failed this objective. I am not a securities attorney, so I cannot say whether this exposes PIMCO to some kind of liability. I would say, as a private investor, that any fixed income fund that can't meet its performance objectives because of market volatility, and not for reasons such as asset impairment or fund company bankruptcy, is not worth my personal consideration. If an investor holds a comparable bond portfolio as individual securities and not as part of an actively managed fund, the investor would receive the coupons on schedule.
This isn't just a problem with PIMCO's Cal muni fund. Some of their other funds have hit the same snag:
But wait, there's more! Other PIMCO funds had problems just last week that will prevent them from paying declared dividends:
PIMCO is regarded (by those same market "experts" who told us securitization of debt was a great innovation) as a firm chock full of bond expertise. If this vaunted expertise couldn't anticipate a volatility-induced payment stoppage in several bond funds, then what exactly are investors getting by paying PIMCO to actively manage their bond money? PIMCO sure has a snazzy website for press releases, which curiously doesn't feature the releases noted above. Any asset redemptions (sales) PIMCO has to make to meet that 200% threshold may come back to investors as taxable capital gains distributions from the funds! Aw, that's just great (sarcasm filter off).
Here's my approach to fixed income investing. I currently use some fixed income securities (CDs, Treasuries, corporate notes, and others with short-term maturities) as my cash management strategy for the proceeds I collect from selling options. I buy them and hold them to maturity. It's that simple. At some future date I'd be willing to buy long-term bonds to protect my principal and get some form of interest rate immunization, but once again I will hold them to maturity. I am not going to waste my time or money actively trading bonds to try to outguess the Fed's interest rate changes. I have a life, you know.
Oh yeah, PIMCO is yet another firm that never responded when I sent them my resume. Now they're having problems. Coincidence? I don't think so. ;-)
Anyway, let's see what happens when fund management companies offer actively managed bond funds, rather than ETFs. PIMCO stated today that one of its muni bond vehicles may have trouble delivering dividends to its investors:
PIMCO California Municipal Income Fund II (the "Fund'') may be required to delay the payment of the declared November dividend and the declaration of the next scheduled dividend on the Fund's common shares.
(snip)
Continued severe market dislocations have caused the value of the Fund's portfolio securities to decline and as a result the Fund's asset coverage ratio has fallen below the 200% Level.
If the 200% Level is not met on December 1, 2008, the Fund would have to postpone the payment of the previously declared November dividend and the declaration of the December dividend until the situation is corrected. Depending on market conditions, this coverage ratio may increase or decrease further.
The fund's stated objective is to provide current income; failure to make a dividend payment means it has failed this objective. I am not a securities attorney, so I cannot say whether this exposes PIMCO to some kind of liability. I would say, as a private investor, that any fixed income fund that can't meet its performance objectives because of market volatility, and not for reasons such as asset impairment or fund company bankruptcy, is not worth my personal consideration. If an investor holds a comparable bond portfolio as individual securities and not as part of an actively managed fund, the investor would receive the coupons on schedule.
This isn't just a problem with PIMCO's Cal muni fund. Some of their other funds have hit the same snag:
PIMCO Corporate Income Fund and PIMCO Corporate Opportunity Fund (each, a "Fund'' and collectively, the "Funds'') today announced that each Fund will redeem, at par, a portion of its auction rate preferred shares ("ARPS''), beginning December 15, 2008 and concluding on December 19, 2008. The Funds also announced that they may postpone the payment of previously declared November dividends for common shares and postpone the declaration of dividends for common shares, currently scheduled to occur on December 1, 2008.
But wait, there's more! Other PIMCO funds had problems just last week that will prevent them from paying declared dividends:
The Boards of Trustees of PIMCO High Income Fund, PIMCO Floating Rate Income Fund and PIMCO Floating Strategy Fund (each, a "Fund'' and collectively, the "Funds'') today announced each Fund will redeem, at par, a portion of its auction rate preferred shares ("ARPS''), beginning December 8, 2008 for PHK and PFN and December 10, 2008 for PFL and concluding on December 12, 2008 for all Funds.
PIMCO is regarded (by those same market "experts" who told us securitization of debt was a great innovation) as a firm chock full of bond expertise. If this vaunted expertise couldn't anticipate a volatility-induced payment stoppage in several bond funds, then what exactly are investors getting by paying PIMCO to actively manage their bond money? PIMCO sure has a snazzy website for press releases, which curiously doesn't feature the releases noted above. Any asset redemptions (sales) PIMCO has to make to meet that 200% threshold may come back to investors as taxable capital gains distributions from the funds! Aw, that's just great (sarcasm filter off).
Here's my approach to fixed income investing. I currently use some fixed income securities (CDs, Treasuries, corporate notes, and others with short-term maturities) as my cash management strategy for the proceeds I collect from selling options. I buy them and hold them to maturity. It's that simple. At some future date I'd be willing to buy long-term bonds to protect my principal and get some form of interest rate immunization, but once again I will hold them to maturity. I am not going to waste my time or money actively trading bonds to try to outguess the Fed's interest rate changes. I have a life, you know.
Oh yeah, PIMCO is yet another firm that never responded when I sent them my resume. Now they're having problems. Coincidence? I don't think so. ;-)
Thursday, September 25, 2008
Bill Gross's Op-Ed Grosses Me Out
Bill Gross of Pimp-Co tries to make his case in yesterday's Washington Post that a financial institution bailout package is a great deal for the taxpayer.
My analysis: Mr. Gross' assumptions are far too optimistic. The average distressed mortgage may have a value of 65 cents on the dollar (doubtful!), but in testimony on Capitol Hill yesterday Ben Bernanke made it clear that the Paulson Plan will make allowances to overpay for the mortgages it will buy. The intent is to keep banks' balance sheets healthy by sticking it to the taxpayer. The real purchase price may very well be closer to 80 cents on the dollar for the average bad mortgage.
Furthermore, financing at 3-4% assumes that today's rates on 10-yr Treasuries will stay that low into the forseeable future. No way! The massive amount of bonds to be issued under this plan will drive Treasury yields through the roof, at least to 8%. The net yield spread to the taxpayer will thus be no better than zero, even in a best case scenario. My back-of-the-envelope calculations may not be as sophisticated as the models Mr. Gross' research staff used to do the math for his op-ed, but they are a heck of a lot more intellectually honest.
I suspect that Mr. Gross' disingenuous offer to manage the Paulson Plan's acquisition and liquidation process free of charge is an attempt to cherry-pick those MBSs that will have an outsized effect on PIMCO's own holdings. Given PIMCO's size in the bond market, there is no way to avoid the possibility of a conflict of interest. That is precisely the problem with any version of the Paulson Plan: too many insurmountable conflicts of interest.
I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent.
My analysis: Mr. Gross' assumptions are far too optimistic. The average distressed mortgage may have a value of 65 cents on the dollar (doubtful!), but in testimony on Capitol Hill yesterday Ben Bernanke made it clear that the Paulson Plan will make allowances to overpay for the mortgages it will buy. The intent is to keep banks' balance sheets healthy by sticking it to the taxpayer. The real purchase price may very well be closer to 80 cents on the dollar for the average bad mortgage.
Furthermore, financing at 3-4% assumes that today's rates on 10-yr Treasuries will stay that low into the forseeable future. No way! The massive amount of bonds to be issued under this plan will drive Treasury yields through the roof, at least to 8%. The net yield spread to the taxpayer will thus be no better than zero, even in a best case scenario. My back-of-the-envelope calculations may not be as sophisticated as the models Mr. Gross' research staff used to do the math for his op-ed, but they are a heck of a lot more intellectually honest.
I suspect that Mr. Gross' disingenuous offer to manage the Paulson Plan's acquisition and liquidation process free of charge is an attempt to cherry-pick those MBSs that will have an outsized effect on PIMCO's own holdings. Given PIMCO's size in the bond market, there is no way to avoid the possibility of a conflict of interest. That is precisely the problem with any version of the Paulson Plan: too many insurmountable conflicts of interest.
Wednesday, September 17, 2008
The Haiku of Finance for 09/18/08
Pimped-out taxpayer
Pays for PIMCO's investments
How Gross can you get
Pays for PIMCO's investments
How Gross can you get
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