Bill Gross Calls for More Bailouts, Profits from Thornburg's Misfortune

It's all be pointing to this direction for a long time... now prominent people are calling for it. For those who don't know, Bill Gross is basically the Warren Buffet of bonds. He is now calling for the Federal Reserve to buy mortgages outright. (full video interview if you follow the link) This was the direction I think we ultimately head as all the King's Horses (and Uncle Ben) put Humpty Dumpty back together again; but it might be a lot sooner than I anticipated. When/if this happens - I expect the stock market to rally quite severely. This is why at any moment it's a risk to hold these Ultrashorts because if it's announced premarket as the Fed loves to do, one will get crushed immediately.

• The Federal Reserve needs to take a more active role in stemming the housing crisis, possibly by exchanging Treasury notes for mortgage notes, Pimco Bonds Chief Information Officer Bill Gross said on CNBC.
• Gross said the Fed's move to increase the allocation for its Term Auction Facility will help the markets, but it needs to be more aggressive to help rally the real estate market. "I think the increased TAF facility this morning will help, but in effect it's sort of a small step for a Fed chairman," Gross said. "What really needs to be done is for the Fed to come in and to lower long-term mortgage rates."
• Gross suggested the Fed can do so by exchanging Treasury securities for mortgage securities. He compared the idea to something called Operation Twist in the 1960s, where the Fed sold Treasurys and bought mortgages.
• The TAF move, he said, "doesn't really provide a floor for mortgage prices and a ceiling for mortgage yields, which is incumbent I think in order to stop the slide of home prices. I mean We still have 30-year Fannie Mae conventional mortgage at 5 3/4 which means 6 1/4, and 7 percent-plus for jumbos. (I didn't know it was the Fed's job to put a stop in the slide of home prices - I didn't see that in their charter? Could someone point that out to me, if you have that handy in front of you?) Egad.
• "The housing market cannot be supported with those types of yields. The Fed needs in effect to buy the mortgage market and not to basically lend on it."

Free market capitalism baby.... works until it doesn't. And then the bailouts begin.

On a related note, I was glad to hear someone is going to become rich from the Thornburg Mortgage (TMA) explosion (it is certainly not going to be me) - like a good vulture, he is passing along the site of a car accident which should not of happened, and stealing the jewelry off the fingers of the mortally injured. Wow, I thought their book of business was just a terrible disaster - so awful that all their banks need to call in their loans immediately; imagine that, the smartest bond manager in America wants to soak up this paper hand over fist. This is simply frustrating to watch this train wreck happen as it's all caused by impatient and frightened banks. Especially when they've let technically bankrupt home builders off the hook for quarters on end.

• The manager of the world's biggest bond fund said on Friday he had bought hundreds of millions of dollars of Thornburg Mortgage Inc's (TMA) debt in the last few days.
• Bill Gross, chief investment officer of Pacific Investment Management Company, or PIMCO, said on CNBC television he has been buying "high-quality" rated Thornburg paper with yields in the "9, 10, 11 percent range." Gross manages the $120 billion PIMCO Total Return Fund.
• "Ultimately, we expect the paper that we're buying to ... provide close to double-digit-type returns," Gross said.

Wonderful. Just fantastic.

Disclosure: Long Thornburg Mortgage in fund; no personal position

Comments

[Short seller:]

Does this surprise you? Jp morgan wins again Thornburb bankrupt by the end of the week . I posted this previously ... but they deleted it. wonder if this one will reaim since it's trading below a dollar?

2008 Mar 10 11:12 PM

[bruin532:]

The FED got us into this trouble with Greenies easy money 2002-4 policy how about they do something creative to get us out of it. There's a lot of innocent people who are watching there investments wash down the drain.

2008 Mar 11 12:24 AM

[vodka_tonic:]

if yields go down due to all this buying, shouldn't the stock market go up.

2008 Mar 11 12:42 AM

[pepster:]

Bill Gross is quoted as saying, "The Fed needs in effect to buy the mortgage market and not to basically lend on it," but my question is this: where would the money come from? If our govt does in fact do a massive bailout, wouldn't that mean massive, massive inflation?

2008 Mar 11 10:19 AM

[Pent up demand:]

Typical limousine liberal. Act like this is a populist issue, and that the issue is "keeping people in their homes", when the issue is propping up the value of collateral on the bankers' books.

2008 Mar 11 11:24 AM

[Trader Mark...:]

Thornburg has been squeezed badly, but not because the quality of loans on thier books is a disaster.. They only hold AAA and AA jumbo mortgages and have ALWAYS had a fraction of the default rates versus all the mortgage lenders in the country. Bill Gross is getting a bargain.

2008 Mar 11 03:29 PM

[mgrund:]

So does anyone know which bond fund to buy to get a piece of this...?

2008 Mar 25 09:11 PM