Not to denigrate Pimco's performance-Gross was a bond futures Goliath even a quarter century ago- but some of his strategies, i.e. squeezing the cheapest to deliver-are enhanced by his massive size. Yes it's more difficult to flip in and out of a trillion than 10k. OTOH if one is going to inventory a trillion-and Gross has new pension money flowing in every week-he can single handily support his portfolio. Let's face it-since 1984 Treasury longs have led the most charmed of exsistences.......
This is true. However, let me further expand. How many funds have you see you seen that started out with a small edge, did well, raised more money, did even better, raised even more money, then developed a god complex and decided they wanted to own the world only to blow up. I think this past year is a great example of many great traders running amounts of money they had no right managing, all based on greed and hubris only to come crashing down. Now maybe that day is still to come for Bill. Perhaps when treasuries come crashing back to the earth. However, up to this point, one has to respect the fact that he has been able to keep this 800 billion pound vessel safe and afloat on the dangerous waters of the world markets. Let's give this guy credit for not pulling a LTCM and leveraging his trades 30 to 1. I guess we'll see how this plays out when treasuries finally roll over. When the tide pulls out...
What about his co-manager, Mohammed El-Arian? He sounds smart on TV.......does anyone have any insight about him?
On a side note Mav quite a few Treasury managers have been smoked relative to their benchmark by selling calls against portfolio. That additional percent or two in premium collection beefed up low yield returns nicely until those irreplaceable longs were called away 15 handles lower than here....
here's why: Bill Gross joins Buffett in warning of derivatives Thu June 5, 2003 11:52 AM ET By Eric Burroughs NEW YORK, June 5 (Reuters) - Warren Buffett isn't the only big-time investor warning of the potential threat the vast and ever-expanding derivatives universe could pose to financial markets. Bill Gross, who helps steer $323 billion of assets for bond fund manager PIMCO (Pacific Investment Management Co.), also frets about the hefty amount of leverage derivatives have allowed could lead to another crisis like LTCM's, especially when markets scent interest rates are about to head higher. "Unregulated hedge funds, collateralized debt obligations and poorly structured derivatives of all kinds that redistribute risk but don't eliminate it, portend the likelihood of another LTCM debacle at some point," wrote Gross in his monthly investment letter. Long-Term Capital Management was the huge hedge fund whose bad derivative trades and other bets in 1998 brought financial markets to near a standstill, forcing the Federal Reserve to organize a Wall Street bailout and cut interest rates to restore market confidence. Derivatives are contracts based on underlying securities such as bonds and stocks as well as variables like currencies and interest rates. They allow users to hedge risks, but also permit speculators to take on leverage, turning $1 million bets into $10 million or $50 million wagers. And, in a recent interview with Reuters, Gross worried about the fallout that will come to speculators, hedge funds and others who have used leveraged bets in derivatives to profit from low interest rates once the Fed reverses course. Gross' comments come on the heels of a much-publicized lambasting Buffett gave derivatives in March when he dubbed them "financial weapons of mass destruction" and a "time bomb" for the financial system. Asked about the Berkshire Hathaway chairman's remarks, Gross told Reuters: "I'm on Buffett's side here." Gross had some pointed words for Fed Chairman Alan Greenspan, who has vocally lauded derivatives for spreading risk throughout the financial system and helping minimize shocks like the bursting tech bubble, the recession and the Sept. 11 attacks. "Greenspan has been all too complacent in this area," Gross said in the interview. In his investment letter Gross also said: "Greenspan has clearly off base in his support of derivatives and their medicinal 'hedging' qualities." The Fed chief recently issued his first criticism of the derivatives market, warning about the widespread disruptions that would result if one of the major derivatives dealers, like J.P. Morgan Chase JPM.N or Deutsche Bank, were forced to exit the market. But in speech after speech, Greenspan has consistently praised the role derivatives while arguing against regulation of the vast over-the-counter market, arguing that the incentives of self-policing are much better at keeping market behavior in line than any government rules. The total number of outstanding derivative contracts now stands at a staggering $141 trillion in outstanding contracts, though that figure largely overstates the amount of risk in the market because many contracts cancel each other out. For Gross, who also runs the Fremont Bond Fund, there's plenty of reason to fret about the fallout from derivatives the day the interest rate cycle changes. "They package the ability to lever a financial instrument to try and take advantage of the short-term rate. And all is well and good until that short-term rate goes up, and that's when you pay the piper," Gross said in the interview. Other market pros also worry the pain could be widespread because many have been swept up in the bond market's three-year old bull run and have become complacent on hedging risk. That brings back nightmares from late-2001 and even 1994 when the Fed unexpectedly hiked rates causing savage losses for many holders of derivatives, like swaps and structured notes whose values were tied to the direction of short-term rates. A lot of those contracts quickly lost value in a way the buyers had not expected, as author Frank Partnoy has documented in his new book "Infectious Greed: How Deceit and Risk Corrupted Financial Markets." Some fear a sell-off could be worse this time around because rates are far lower now than they were then, and few have hedged for a spike in rates even with trillions of tricky mortgage-backed securities outstanding. The value of those mortgage securities changes quickly as rates rise. "My sense is we may have another few years, maybe not, in terms of something going wrong," Gross said. "If you employ more and more leverage through additional forms of derivatives, ultimately as that short rate moves up somebody endures a lot of pain. That's the potential breaking point."
He is one very smart cookie...one of my best mate's daughter works with him at Pimco...she too is no slouch, but she is in awe of his brilliance. He was also very successful at Harvard looking after their booty.