PIMCO Goes on a Bashing Spree, Flees Dirty Fed "Money" for Safety

Thursday, January 07, 2010 , , , 0 Comments

First Bill Gross starts calling out the Fed on their non-existent exit strategy and now this, hell, these guys might be onto something.


Investors should favor government bonds in countries with strong fiscal positions, such as Germany, this year, and prepare for a tougher year in the U.S. and the U.K. in particular, where interest rates will rise as governments and central banks start to withdraw their huge stimulus efforts, according to Bill Gross, co-chief investment officer at bond fund giant Pimco.

After a stellar year for riskier asset classes, the financial markets will need to adjust "to the absence of their 'sugar daddy,'" Mr. Gross said in his investment-outlook letter, posted on Pacific Investment Management Co.'s Web site on Wednesday, referring to support programs such as the Federal Reserve's $1.25 trillion mortgage-bond purchases, which have lifted asset markets and kept interest rates low across the economy.

Hey Timmy, I think Bill Gross just called you a cheap whore but maybe I'm confused.

Wait for it, it gets stranger:

Market participants estimate that rates on 30-year fixed loans will rise to about 5.5%— from the current 5.05%, according to Freddie Mac data—when the U.S. stops buying mortgages. Investors will demand a higher return for taking on risks now shouldered by the Fed.

If the market pushes mortgage rates close to 6%, however, then there may be a need for the Fed to re-enter the market.

Meanwhile, risk assets remained in favor with many investors, despite Mr. Gross's warnings.

Highly rated companies lined up to sell at least $10 billion in bonds on Wednesday, on top of the $23.5 billion sold on Tuesday. Issuers, mainly from the financial sector, included Warren Buffett's Berkshire Hathaway. The junk-bond market, for its part, had its busiest start to the year since 2005, with $685 million in new offerings.

Listen, when did we ever sign off on the Fed entering the market every time there's even the slightest catastrophe? Instead of sending in the funny money goons, how about letting markets work out their own kinks?

Or is it still "whatever it takes"? Please, they can't tell us "everything is fixed" out of one side of their mouths and "we still have work to do" from the other.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.