Is PIMCO Too Big?

I am not suggesting that PIMCO hasn’t earned its size or that it is unstable - note that I did not say “Too Big to Fail” in my title despite the Fannie / Freddie bailout. I would have no desire to evaluate that and I am not qualified as I don’t do much with the fixed income world other than analyzing the broad implications of debt instruments on the general economy and what that means for stocks.

My title has more to do with them being too big for their britches. I am just more than a little concerned about a weird feeling I have every time Bill Gross, Mohamed El-Erian, Paul McCulley or William Thompson appear on CNBC, Bloomberg or any other media outlet that have annointed PIMCO as the leading authority on the credit markets.

It’s more than just their blatant book talking or their ass-kissing of politicians and especially their constant endorsements of government bailouts and interventions. I just get this strange feeling that PIMCO is way too involved in politics. I know they are the biggest (and supposedly the best) fixed income guys and their understanding of these markets in a time of extreme confusion with global credit markets might be something that clueless politicians would want to hear.

But there comes a point were advice conflicts with influence and coordination. No one elected these guys. No one appointed them to a regulatory role. Does anyone dare wonder how many times PIMCO has met with politicians during the past year and what was said and then what was done?

Comments

[whidbey:]

Great questions. Pimco is ripe for abuse, not to mention blunders and hubris. Gross is not the brightest light in the fixture, but he is determined, the man people look to given his success and wealth (movie star qualities without good looks). he and his underlings understand that in fixed income is "political money" The distance between purchase and maturity is so long that one has many opportunities to recoup errors or magnify genius - if one works the streets. And governments and business crave the long dollars Pimco can provide. They do it well of course.

Should we worry? Will price theory teaches that many players gives best prices and allocations(insures against any one player wrecking the marketplace). Unquestionably Pimco is a very big fish in a very small pond. The recent addition of the man from Harvard, (and his steeply stupid book on the world) is meant to give a little international flair. Yes, I say do worry and share any answers you find. At this point in life no institution is above searching questioning.

2008 Jul 31 05:59 PM

[jjason:]

Dear Whidbey and Mike,

You have both made comments and said Nothing.

Why?

If Pimco has been successful and is doing a good job for investors ( I am long PTY and PHK ) why criticize them?

Bill Gross...has he been more right than wrong?

I read what the folks at PIMCO say. I do not agree with them all the time. But I trust their judgment more than the former CEO's at CFC, NEW, IMB, WB, Fanny, Freddy, BS....do I need to go on?

2008 Aug 04 05:45 AM