Interesting People: Bill Gross and Mohamed El-Erian

45
Sun, Sep 28, 2014 - 6:28pm

Day shift leaving, and the night shift not yet arrived.

From the one and only Wikipedia and abbreviated as required:

" Pacific Investment Management Company, LLC (commonly called PIMCO), is an American global investment management firm with over 8,400 employees working in 13 offices across 12 countries. PIMCO is one of the largest active global fixed income investment managers in the world, with over $1.97 trillion in managed assets of 30 June 2014. The company runs the largest bond mutual fund in the world - the PIMCO Total Return Bond Fund, and provides portfolio management and asset allocation solutions for millions of investors worldwide......... PIMCO also has an ETF business, which had approximately $13.581 billion in assets under management, as of Jan. 21, 2014. "

Where did PIMCO come from?

Wiki:

" The firm was founded in 1971, launching with $12 million of assets. Previously, PIMCO had functioned as a unit of Pacific Life Insurance Co., managing separate accounts for that insurer's clients. In 2000, PIMCO was acquired by Allianz SE, a large global financial services company based in Munich, Germany, but the firm continues to operate as an autonomous subsidiary of Allianz.

..... The firm is known to have coined and popularized the phrase "the New Normal" in the aftermath of the subprime mortgage crisis in 2009. More recently, PIMCO introduced the "New Neutral" thesis to characterize a period of lower but stable economic growth, and interest rates to remain low for a longer period of time. "

And who founded PIMCO?

Wiki:

" PIMCO was headed by Co-Founder and Chief Investment Officer (CIO) William H. Gross, (better known as Bill Gross). "

Source: https://en.wikipedia.org/wiki/PIMCO

Well that is a truly marvellous company to found and run. A spectacular success. We can learn a lot from such a success story. Let's look further.

Who is Bill Gross?

Wiki:

" William Hunt "Bill" Gross (born April 13, 1944) is an American financial manager and author. He co-founded Pacific Investment Management (PIMCO). Gross also ran PIMCO's $270.0 billion Total Return Fund (PTTRX). "

Ah that Bill Gross! What more leaps out for a fast scan?

Wiki:

" In the 1990s he authored two popular-market books on investing, Bill Gross on Investing and Everything You've Heard About Investing is Wrong! In September 2008, by holding large positions in agency-backed mortgage bonds of Fannie Mae and Freddie Mac, Gross's funds netted U.S. $1.7 billion after the federal takeover of Fannie Mae and Freddie Mac, for which he had lobbied. "

Source: https://en.wikipedia.org/wiki/Bill_Gross

So it's clear that Mr Gross is a seriously heavy hitter, smart as the proverbial tack, not averse to play poker with the US Government over the rescue of an insolvent financial toy in which he has an certain interest. I also note that he has made a 20 million plus dollar donation to a university, as well as other substantial philanthropic donations to good causes.

Bill Gross is definitely at the top of the class when it comes to trading the bond market.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Do you know Mohamed El-Erian?

Wikipedia:

" Mohamed A. El-Erian born August 19, 1958) is the Chief Economic Adviser of Allianz a multinational financial services company. He is the former CEO and coCIO of PIMCO, a global investment firm and one of the world's largest bond investors, with approximately $2 trillion of assets under management as of December 2013. PIMCO is a company of Allianz.

El-Erian serves as chair of President Obama's Global Development Council.[4]He is a columnist for Bloomberg View, as well as a regular contributor to the Financial Times and ...... "

Source: https://en.wikipedia.org/wiki/Mohamed_A._El-Erian

I think you get the picture about the capable and insightful Mr El-Erian, who recently spoke at the World Economic Forum.

Let's move on. (and that's it with the Wiki quotes!)

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I won't bother you with extensive texts copied from the biography of either of these gentlemen. Their photos are everywhere, and their published papers are well worth looking up and reading. I speak from personal experience of reading same.

But as an aside from the purely business arena, it is also worth considering the high level circles of society and leadership they inhabit, the level of the people they advise, and their track record for good judgment.

Fact is they took PIMCO to the top place in bond trading fund size based on the aggregate of skills required to do this.

That's why it's interesting that they have both resigned from PIMCO during 2014.

El-Erian retired during last March, and still is with Allianz as an Economic Advisor, but not connected to the bond trading ETF. Bill Gross announced his retirement this September.

At this point you might like to take a look at this blog article by Barry Ritholz, in particular the long term interest rates chart: https://www.ritholtz.com/blog/2013/01/long-interest-rates-1790-to-present/

That's a doozy of a bear trend in interest rates/bull trend in bonds!

Highest high for bonds in 300 years!

We need a closer look.

Here is the Fed Funds Rate since the early 1970s: https://www.tradingeconomics.com/united-states/interest-rate

The 1970s is particularly relevant because it represents the beginning of the period of success for the careers of Mr Gross and Mr El-Erian. It's the beginning of the final swing of the 300 year uptrend in the bond market, from which these two gifted gentlemen derived such success.

And now they have both walked away. From making a living running a bonds fund.

Hmmm.

Here is a chart I created at the start of 2014. At the time I said I thought it might take until middle-late 2014 to work out in some fashion.

I was a tad early. It's beginning to work out though, in my view.

Gold is not exactly a commodity. Neither is it an inflation hedge, in the short or medium term sense it does not correlate with bursts of inflation as they come and go. it functions as a long term inflation hedge. But more than anything gold is an anti correlated asset to real interest rates. Which is to say. when interest rates do not rise enough to cover the depreciation to fiat money by inflation, gold rises.

So it's not a bond, neither an inflation resistant bond like the TIPS. Gold is a bond competitor asset for when bonds lose value through default or erosion. So when money flows out of bonds looking for a home, stocks receive some of that money, and so does gold.

Did you notice that recently the Central Banks are publishing economic statistics which show a slowing down of "the recovery". They seem to fear "a recession" or something like that. Funny. It seems to me that these are the exact things they denied were happening for the past five years! Even though everybody else could see them. So why on earth would the central banks and their financial representative agencies do a turnaround on their positivity meme and begin to promote the idea that scary deflation is coming.

Could they be trying to herd capital back into bonds?

But if the central bankers are likely to succeed at this why did both Messr's Gross and El-Erian decide leave their former activities, now. And, as Marc Anthony said, they are all such insightful capable men - or something like that.

It's not quite time for precious metals, but it's close.

What will a 300 year turn in interest rates look like for gold? We should prepare for massive oddities in coming events.

Cheers

Argentus Maximus

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmNPrice.

About the Author

  45 Comments

Boswell
Sep 28, 2014 - 6:34pm

Hi!

We have a winner! (#1)

Just happened to be sitting here and noticed the spot was open. ;-)

I had some "PIMCO" in an Insurance Acct., just moved it out a few minutes ago. I guess "Personality Investing" has its pitfalls.

Mr. Fix
Sep 28, 2014 - 6:49pm

2nd

"We should prepare for massive oddities in coming events"

Now there is an understatement.

DeaconBenjamin
Sep 28, 2014 - 7:24pm

CEO of Trillion-Dollar Company Resigned After His Daughter Told

Former PIMCO CEO Mohamed El-Erian's daughter made him a list of all the milestones he had missed

A 22-point list written by his 10-year-old daughter was all it took to change the trajectory of Mohamed El-Erian’s life.

In January, El-Erian made headlines for announcing his resignation as CEO of trillion-dollar investment fund PIMCO in January. In an article for Worth this summer, which has recently gone viral, El-Erian explains that he decided to step down after his daughter listed out the many milestones he had missed in her life.

When El-Erian asked his child why she wasn’t listening to him when he asked her to brush his teeth, she gave him a list of 22 things he had missed (from first soccer matches to Halloween parades) because of work.

“Talk about a wake-up call,” El-Erian writes. “I felt awful and got defensive: I had a good excuse for each missed event! Travel, important meetings, an urgent phone call, sudden to-dos… But it dawned on me that I was missing an infinitely more important point.”

https://time.com/3432717/ceo-of-trillion-dollar-company-resigned-after-h...

ag1969
Sep 28, 2014 - 7:25pm

Well AM, this could get interesting

Tensions had been building within Pimco, the Newport Beach, California-based asset manager with about $2 trillion under management. Co-Chief Investment Officer Mohamed El-Erian, Gross's long-time heir-apparent, made an acrimonious exit in January. The flagship Total Return Fund, the world's largest bond fund, suffered 16 straight months of outflows. The wrangling and the underperformance grated on the executive committee, chaired by Chief Executive Douglas Hodge.

"While we are grateful for everything Bill contributed to building our firm and delivering value to Pimco's clients, over the course of this year it became increasingly clear that the firm's leadership and Bill have fundamental differences about how to take Pimco forward," Hodge said in a statement on Friday.

As Gross, known as the "Bond King" within the industry, butted heads with colleagues, the clashes got worse. In recent days, about five senior portfolio managers told the executive committee that they would quit if Gross stayed, the sources said.

Gross himself threatened repeatedly to quit, letting management know that he had been looking around for a role elsewhere. Jeffrey Gundlach of DoubleLine Capital, Gross' arch-rival and the closest contender for the Bond King crown, said in an interview on Friday that Gross approached him early last week about a possible role.

They met last week at Gundlach's house in Los Angeles. The two discussed the possibility of Gross joining DoubleLine, but Gundlach said he wasn't willing to share direction of the firm with Gross.

"He didn't seem that rattled. But he didn’t seem happy. He seemed a bit angry about what was going on," Gundlach said.

In recent days, when Gross again threatened to quit, the executive committee decided it was time he actually left the firm, one of the sources said.

The firm had already put a succession plan in place, choosing Deputy Chief Investment Officer Dan Ivascyn as the successor. Allianz SE (ALVG.DE), the firm's German parent, had given its blessing. An announcement of Gross' ouster had been prepared, and was set to be announced as soon as Saturday, the source said.

Then, Gross sprung a surprise.

On Friday morning, Gross quit Pimco to join asset manager Janus Capital Group (JNS.N), run by his former Pimco colleague Richard Weil. Gross will manage the Janus Global Unconstrained Bond Fund (JUCTX.O). The fund, started in May, has just $13 million in assets. Pimco Total Return Fund has about $222 billion.

"It is the right thing," Gundlach said of Gross's move to Janus. "Now he can perform better because he isn't managing a lot of money."

Gundlach said Gross left him a voice mail on Thursday evening, saying he was leaving Pimco to join another firm.

Gross didn't respond to requests for comment.

GROSS WALKS AWAY

Gross' abrupt departure climaxes a drama that has riveted industry executives, investors and rivals over the past year. It raises questions about the future performance of the firm, which counts tens of thousands of ordinary Americans and major institutions including the CalPERS pension fund as investors in its mutual funds, exchange-traded funds and other products.

U.S. Treasuries prices fell on Friday, Allianz slipped more than 6 percent in German trading and Janus soared 43 percent.

"I think people are concerned that Pimco is going to have to liquidate, so there is some pre-selling going on ahead of the fact that they may have to do some selling," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets.

https://www.reuters.com/article/2014/09/26/us-janus-billgross-exit-insig...

sierra skier
Sep 28, 2014 - 7:28pm

Bill has been a solid

Bill has been a solid investor forever.

Retiring out of the bond markets at the height of his career is perhaps a great move the way things are setting up. Interest has nowhere to go but up and that would hurt the bond values. I am sure he sees something that would hurt his fund's performance.

Fred Hayek
Sep 28, 2014 - 7:43pm

Criticizing philanthropy doesn't play well, but . . .

There are not many more worthless things you can do with $20 million than to give it to a college or university. Bill Gross gave $20 million, a huge sum of money, likely multiples of the total gross income I'll make in my lifetime, to Duke University.

But, you know what? Duke University now has an endowment of over $6 Billion. That's right. Bill Gross had $20 million to give away as a philanthropic gesture, and he gave it to an entity that essentially has 300 times that much dough sitting in the bank. Is there anything they could do after that, after he increased their holdings 0.3% that they couldn't have done the day before?

What could St. Jude's Hospital do with that? What could the Salvation Army do with that? What could he have done investing that as venture capital in some company or companies involved in manufacturing, not twee little phone apps but actual manufacturing of some sort that might employ blue collar men and women?

But, no, he didn't do any of these things. He contributed a rounding error to an entity that, simply by the fact that it has amassed $6 billion of endowment, we can reasonably surmise has no fvcking clue how, or no intention, to deploy its resources to help students, families, the community or scholarship. Congratulations, Bill, feel GOOD about yourself! You took a huge something and almost assuredly made nothing out of it. What a grand person you must be!

Sorry for the rant.

And, I completely agree, AM that the timing of the departures of Gross and El erian do fit rather neatly with the thesis that the worldwide bond bubble is floating toward a landscape full of cacti.

AlienEyes
Sep 28, 2014 - 8:35pm

Fat Cats

It pays to watch the hands of the big shots but listening to what they say will yield a break even at best and watching their eyes will yield a loss.

agNau
Sep 28, 2014 - 10:08pm

I have a request.....of Turd....

...on my way to work last night I listened to an interview of Andrew Maguire on KWN. It was quite revealing, and at the same time left me wanting more detail. Andrew's insights into the workings of the metals trade is IMO invaluable. (in particular, more depth would perhaps close some gaps in thought.) I know that an interview doesn't happen at the drop of a hat. Even Turd's hat. But I do think at this junction in time picking Andrew's brain just a little more would benefit all in Turdville. What say yee?!!!

agNau
Sep 28, 2014 - 10:21pm

I keep asking

But I haven't been able to get Andy to come on. Will keep trying, though.

Sep 28, 2014 - 10:21pm

Great post, AM

Thanks for writing about this!

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Subscribe or login to read all comments.

Contribute

Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

Forum Discussion

by Solsson, 4 hours 19 min ago
by Pete, 8 hours 11 min ago
by SteveW, 8 hours 54 min ago
by Phoenix79, Oct 17, 2019 - 6:28pm
by NW VIEW, Oct 17, 2019 - 4:40pm