Signs the bottom is behind us?
April 10th, 2008, 5:09 pm · 20 Comments · posted by Andrew Galvin
Trying to read the tea leaves in a couple of news items ….
1) Our local superstar investment manager, Bill Gross of Pimco, has been buying mortgages.
Bloomberg News reports that Gross
lifted holdings of mortgage debt in the world’s largest bond fund to the highest since 2000, while putting on the biggest bet against government debt since at least the same year.
The $125.1 billion Pimco Total Return Fund had 59 percent of assets in mortgage debt in March, up from 52 percent the prior month and 23 percent in March 2007, according to data on the Newport Beach, California-based firm’s Web site.
The story notes that the yield spread between 30-year mortgage bonds guaranteed by Fannie Mae and 10-year Treasuries has narrowed to 1.74 percentage points from 2.38 since March 6, when it was the highest since 1986.
Gross’s strategy seems to be paying off, as the Total Return Fund has returned 4.03 percent this year, beating all others in the intermediate bond fund category, according to Morningstar.
As our colleague Jonathan Lansner has recently reported, Gross has supported direct government aid for troubled homeowners and said the Federal Reserve should buy mortgage bonds to drive mortgage rates lower.
2) In another story, Bloomberg reports that even as Goldman Sachs is laying off workers in its mortgage unit, the firm’s CEO, Lloyd Blankfein, thinks the worst of the credit crunch is behind us:
The credit-market crisis, which started with plummeting subprime mortgage-related securities and spread to leveraged loans and municipal bonds, is “closer to the end than the beginning,” Blankfein, 53, said today. He also said he expects the U.S. economy, which he said is growing at about zero percent, “will be on a growth curve again” by the end of the year.
April 10th, 2008 at 11:19 pm
Bill Gross of Pimco is not stupid enough to buy mortgage. He buying mortgage debts at 10 cents for a dollar.
Watch out for media spin with all the backup from these Investors. If the “credit crunch behind us and economy growth by the end of this year, Goldman Sach CEO Lloyd Blankfein would never lay off his employees.
Never trust them again. Watch not what they said but what they do.
April 11th, 2008 at 7:04 am
I don’t know about you, but my bottom is always behind me. Unless I’m sitting down, of course, then it’s below me.
April 11th, 2008 at 8:14 am
I have no idea whether they are right or wrong, but I do know that many bears are so tied into the market continuing to fall, they instinctively reject any piece of information that is not consistent with their views. It reminds me of the folks who believed the market would continue to rise indefinitely.
April 11th, 2008 at 8:25 am
Barry Ritholtz at The Big Picture had a post up the other day with the quote
“From the folks that never saw it coming, they are now certain it will be very mild.”
So you have this guy Blankfein quoting
“He also said he expects the U.S. economy, which he said is growing at about zero percent, “will be on a growth curve again” by the end of the year.”
These are the same people that said “there is no housing bubble”…….”soft landing”….etc…etc…etc. Now these people are going to be surprised all the way into 09.
April 11th, 2008 at 8:59 am
We are at the beginning of this thing. It is not about the real estate bubble; though this is one part of it. We are talking about a $516 trillion derivatives bubble. When the derivatives bubble needed more inflation, the mortgage dealers supplied the paper, any paper. Muchnof the bubble is built nio real estate (mortgates), but also includes Municipals, ceredit cards, auto loans, etc.
The only way out of this is to rework the entire currency/credit system in the US.
We need to http://www.TakeBackTheFed.com
April 11th, 2008 at 9:44 am
The end is near?
Who would of thought this mortgage mess would have only last 2-3 years?
Statistically, isn’t that what they usually last anyway?
Hmmm… Time To Buy & make a nice profit in 3-4 years!
April 11th, 2008 at 10:03 am
Here is a quick story “from the trenches”. I wrote an offer for a client yesterday on a short sale that is listed for $175,000. The tax records show that the property was bought 11/2005 for $447,000 (100% financing), then refinanced 3/2007 for $490,000 (100% cash out), and now its going to sell for around $175,000. Thats a $300,000+ loss on one little condo in OC. With the magnitude of losses out there, it would suprise me if we were at the bottom already.
April 11th, 2008 at 12:12 pm
“It reminds me of the folks who believed the market would continue to rise indefinitely.”
not indefinitely. just for the next year or two… minimum
April 11th, 2008 at 12:49 pm
I don’t think the botom has been reached. However, the rate of decline is slowing. That is a necessary first step. Prices may settle a little more this summer and fall. But, then comes the winter months! That usually entails lower prices. So, I would assume prices will decrease at least untill spring 2009. That could be the bottom if prices stabilize then. That would be my optimistic guess.
April 11th, 2008 at 1:24 pm
It’s interesting that Gross reveals his long-mortgage security, short treasuries strategies after he’s been pounding the table for months that the government should buy out all the mortgages as “good for America”, when in fact it’s bad for America and good for his trading positions. Such actions would give him a mortgage security pop to sell into and then set up the government for insolvency, giving him a double win on both the long and short positions.
April 11th, 2008 at 1:29 pm
Yeah, Gross is self-serving no doubt. He is trying to boost his funds up. Hopefully, Bernanke et al sees through this.
April 11th, 2008 at 2:05 pm
Nope, these notes are not going for .10 cents on the dollar. Non-performing notes in areas outside of Ohio/Michigan are going for around 0.50 cents on the dollar and that’s considered competitive.
April 11th, 2008 at 3:14 pm
the bottom behind us?!? hahahahahahahahahahahahahaha! buckle up suckers!!! gonna get rough!!!!!
April 11th, 2008 at 6:07 pm
How can anyone think we’re past the bottom when there are millions more foreclosures to come?
April 14th, 2008 at 6:20 pm
Matt-
PIMCO is planning to move heavily into subprime, presumably because they can buy ’scratch & dent’ paper for pennies on the dollar. This isn’t my opinion. It’s a fact that PIMCO is courting subprime servicers to partner with on these deals.
April 14th, 2008 at 7:52 pm
huh,
There are “MILLIONS more foreclosures to come”??? All I can say is…..HUH?? There are only a little over 100 million HOUSEHOLDS in America and 30% of those carry no mortgages at all…and despite the chicken little’s running around here on this blog, MOST of those carry low rate fixed mortgages with more than 40% equity in their homes…MILLIONS you say??? Look it up (for once) if you don’t believe me. LOL! Thank for the laugh! I love this board….always very rational! Ha!