PIMCO's Gross Isn't Just Treasury-Neutral –- He's Shorting Them

(April 12, 2011) — Bill Gross, the kingpin of Pacific Investment Management Corporation (PIMCO), has moved its flagship Total Return Fund, not just to a Treasury-neutral position, but a short one.

As of the end of March, the Fund has a negative 3% weighting by market value in US Treasuries, according to ZeroHedge. According to the April investment outlook written by Gross and posted on the company’s website, “[PIMCO has] been selling Treasuries because they have little value within the context of a $75 trillion total debt burden. Unless entitlements are substantially reformed, I am confident that this country will default on its debt; [but] not in conventional ways…”

Bill Gross, possibly second only to Warren Buffett in terms of prominence in the investment field, has been far from shy in expressing his views on everything from bond prices to bank morality. Since January, Gross has commented that:

• The $237 billion Total Return Fund will hold no government debt for the first time in over two years and will cut its mortgage-backed securities from 42% to 34% of holdings. Instead, Gross said the fund is moving toward emerging-market debt, upping its holdings in this category to 10% of its total assets.

• The cost of the Federal Reserve’s action regarding its quantitative easing program is starting to outweigh the benefits. “Bond yields and stock prices are resting on an artificial foundation of QE2 credit that may or may not lead to a successful private market handoff and stability in currency and financial markets,” Gross wrote.

• America should be criticized for its culture of money and greed. Gross asserted that the US needs new priorities. Gross placed blame on money managers for failing to make smart decisions in regards to asset allocation. He further criticized financial innovation, such as securitization, urging investors to analyze other yields and assets. “Fifty years ago, the highest paid and most prestigious professions were that of a doctor or a 707 airline pilot who flew the “golden” route from Los Angeles to Honolulu,” he wrote. “Today the yellow brick road begins on Wall Street or the City…the money is made from securitizing things instead of booting and rebuilding America. The tallest buildings in almost every major city are banks, with tens of thousands of people shuffling and trading paper for a living.”