Pimco's Bill Gross on the Fan/Fred rescue: "We like it"

Bill Gross, the bond market guru at investment giant Pimco in Newport Beach, told my colleague Peter G. Gosselin on Saturday that he wanted to "see the money" in a federal rescue plan for Fannie Mae and Freddie Mac.

So how does $200 billion sound? I asked Gross today.

"We like it," he said. "We think it’s a positive step."

Gross has been agitating for months for a bigger federal role in bailing out the sinking housing market. He acknowledges his critics, who say he’s "talking his book": Because Pimco is a huge investor in mortgage-backed bonds of Fannie and Freddie, the firm and its mutual funds stand to benefit now that the government is stepping in to assure that the companies stay solvent. Pimco also will be helped as the Treasury begins to buy mortgage-backed bonds in the open market.

But Gross has asserted that the feds needed to act for the greater good of the economy and the financial system, not just for the continued health of his Pimco Total Return bond fund, the world’s largest. The $130-billion-asset fund is up 3.5% this year, ranking it in the 96th percentile for performance among bond funds.

Gross said he believed that the Treasury’s rescue plan would go a long way toward improving sentiment in the financial and housing markets.

For the financial system, "The Category 4 hurricane has been downgraded to a tropical storm," he said.

He predicts that mortgage rates will fall this week as the rates that Fannie and Freddie pay to borrow money begin to decline.

He also expects the stock market overall to rally Monday.

And Gross has revised his estimate of how much more of a decline is in store for home prices. He had been expecting average home prices nationwide to fall an additional 10% to 15%. With Fannie and Freddie preserved, he sees prices bottoming after a further decline of 5% to 10%.

But that isn’t his forecast for California, where market conditions are much worse and likely to stay that way, he said.

Photo: Bill Gross of Pimco

Comments

[steven]

!!!!!!

[acitizen]

What are the rights do the preferred and common share holders have, under US corporation and SEC laws?

[Bruce Hammerstrom]

What's good for Pimco is good for the nation!!

[acitizen]

Can the US and global preferred and common share holders trigger international class action law suits under the current US and International laws? Had this been considered at all?

[formerlahomeowner]

PIMCO and its investors (rich folks?) gain while people who did not participate in the housing frenzy due to financial prudence will continue to suffer due to the govt support of high housing prices. Rich get richer, poor people become slaves.

Their billions is not enough and they want a bailout from the taxpayers.

[John Hargreaves]

What's the difference between a PIMCO executive and blackmailing crook? None.

[Ransome]

Bill Gross read the tea leaves and placed his bets. What he says now is an afterthought.

The Regulators allowed Wall Street to print counterfeit money by the use of leveraging and the production of exotic securities. We are going through a de-leveraging process where the Government is slowly making good on all the counterfeit money, to avoid a total global financial meltdown.

It is astounding that Fred and Fan were allowed to buy securities backed by crappy loans they would not be allowed to buy themselves. How did that happen? We know their CEOs were rewarded handsomely.

The one thing you cannot forget, ever, if the Anti-regulation, Free Marketers were successful in privatizing Social Security, it would be completely bankrupt as well, chock-a-block full with mis-rated worthless securities.

[martscan]

Somewhere down the line these bailouts based on "too big to fail" and systemic risk to interconnected economies has to stop. While the "greater good" for the economy is understood by even the most unsophisticated...and least at risk...of us..it is a fact that the 'greater good' has more 'good' for the Pimcos of the world than Joe Blow, who wouldn't know a debenture from a lug nut.

[Daniel Williams]

Formerlahomeowner, do you even know what Pimco does? The Total Return fund, as the article mentioned, is the largest bond fund in the world. It isn't where rich people put their money--it's mainly firefighters' pensions and retirement funds. If anything, the Pimco TR is actively working to PREVENT the poor from becoming slaves, although it works very slowly. Furthermore, often (due to the huge number of investors in the fund) what's good for Pimco is good for the country, without sarcasm.

[Nathan]

Of course, Bill Gross likes it - they're bailing his butt out!

[Saltwater Jim]

No one person or company is being helped by this take-over. Almost all 401Ks are helped, many banks, simple investors, and foreign countries are all helped by this move. I know our small minded Congress laid the foundation for these bad investments, but this take-over will help many. Thanks for now. Let's fix Congress later.

[LetFannieCrash]

Great article on Gross/Pimco and what they've been up to here:

http://www.greenfaucet.com/hanlons-pub/the-fannie-freddie-rally-can-it-hold-even-for-today/90453

...this guy really nails it.

[David Buffalo]

I am indeed frustrated with the total corruption that is the mortgage market. In this twisted fraud where every participant is guilty (the buyer, the broker, the mortgage lender, the banker, the hedge fund manager (and the bond manager in this case, who wants his fund bailed out to save his own rear end), the taxpayer and future generations will be saddled with trillions of dollars of debt.

If Mr. Gross were truly a forward thinker (and I know he is, which is why I am shocked that he actually thinks this is a good deal), he would realize that heaping the already incomprehensible federal debt with even more debt will ulimately add to the deflationary event that will surely come. It will come either when interest rates are jacked up when our creditors come to bail out of dollar-denominated assets, or when our economy collapses from the sheer weight of the debt we must pay to support the welfare state we have created.

There will ultimately come a day when the failure to meet one's personal financial obligations will be met with the consequence of financial collapse (and I feel that day is less than one full generation away as foreign economic powers eclipse the USA).
I am ashamed that Mr. Gross has decided to buy into the fraud just before his own ox has been gored. I think it is not only unpatriotic, but patently dispicable.

It ia a sad day for America. The first of many sad ones I am afraid.

[Paul]

I don't know why everyone is upset here. 5 Trillion dollars (potential market risk) is a drop in the bucket when you consider that we (silent taxpayers, not rich enough to afford a lobbyist), are already on the hook for over 50 Trillion dollars in entitlements that have been promised to us by our government (that we elect), but which we don't have the money for!

All this does is move up the day of reckoning. No country in history has ever taxed or borrowed its way to prosperity. We are trying to do it by printing more new debased currency to pay back old loans that were used to finance day to day expenses and not finance long term capital purchases.

[N. R. Ringlee]

The real battle between "free market economics" and "socialism or social democracy" is between the rich, who are all socialists when they get in trouble, and the less-than-rich, who suffer the consequences of the aforementioned "free market economics." Bill Gross is a smart guy, and has done a marvelous job at Pimco and has consistently outperformed his peers. But his peer group needs to be reigned in, and this is just phase one of that process. It will take a long time and a lot of effort to once again have some sense of civil order in our financial markets.

It is time to 'fess up to the fact that big daddy Federal Government is going to have to step in and "nanny" the MBA's for a while. Two years hence, anyone using the term "free market economics" shall be laughed off the stage. A toast to regulation!

[2lose1shirt]

Imagine this multi billion rescue plan went to every citizen in this country instead, even them who did not participate in the eye hunger for a home not affordable. That would even things up, but right now these small amount of good fellows are picking all the cherries in the pie and promising the crumbs to every citizen.. I know you’re smarter not to believe its for the best they do like this!