Saturday, September 13, 2008

It's good to be Bill Gross

If your name is Bill Gross, this was a good week. If you live in the US and your name isn't Bill Gross this wasn't your week. Bill Gross is the Chief Investment Officer of Pimco, a fixed-income asset management firm with a portfolio of around $747 billion. So, if you're not that Bill Gross, it wasn't your week either.

Bill bet that the Treasury department would back the debt issued by Fannie and Freddie. So, when Treasury guaranteed that it would back the debt, Bill made a cool $1.7 billion. Oh, and you picked up about $800 in additional debt. It's good to be Bill.

The week before, I read that Bill was saying the US government needed to use more of its money to support these securities. Hmm... I like that, use the US Government's money to replace private investors who either don't have enough money or are tired of being burned by losses investing in US financial stocks.
From: Bloomberg: U.S. Must Buy Assets to Prevent 'Tsunami,' Gross Says

That's a pretty sweet deal if you've got about 70% of your fund's assets in the lousy Mortgage Backed Securities and preferred stocks of Fannie and Freddie.

However, if you're just Joe Taxpayer like me, you're getting screwed.

The phrase I like the most is "The U.S. Government needs to start using more of its money..." I don't know what government Bill is talking about. Clearly he couldn't be talking about the U.S. Government:
  • $9 Trillion in debt
  • $400+ billion budget deficit expected for 2009
  • $260+ billion in debt payments expected for 2009
  • $53+ Trillion in unfunded obligations
What money is Bill talking about?

Oh, silly me, I remember. There are two options, tax more, or print more dollars and further debase the currency. Either one of these leaves you and and me holding the bag.

We are now getting the worst crossbreed of Socialism and Capitalism. We're privatizing the profits, (the millions and billions of dollars bankers and financial wizards made while creating the mess), and nationalizing the losses, (the bailout of Fannie and Freddie, Bear Stearns, [though the $29 billion for that looks like chump change now]).

Fannie and Freddie were private companies. They operated without Government oversight. They were owned entirely by shareholders who reaped years of nice growth and dividend payments. Now, you're getting stuck cleaning up their mess.

This week, the U.S. Government debt picked up $5 trillion more. Maybe the mortgage portfolio of Fannie and Freddie is worth something. Nobody in the world seems to have believed it was worth the $5 trillion that Fannie and Freddie are on the hook for. So, instead of Fannie and Freddie tanking, and the portfolio being broken up and sold for whatever it is truly worth, the taxpayer is on the hook for the whole thing.

Yes, the whole mess disgusts me. But, I don't know what I can possibly do about it.


C3 said...

I just hope some of that Fannie/Freddie profit ends up in the Pimco Bond Fund.

Here is what you can do. Be like Bill. Profit. If the dollar is going to crash, get cash flow from property investments leveraged with dollar debit. When the debit value falls due to inflation, your income can go up. It's not perfect or without risk but it's my plan.

As to the whole "ask not what your country can do for you" part... find and support Ron Paul minded candidates for local office. As Palin shows, your mayor could be the VP in a few short years....

Scott Wimer said...

I think it's a foregone conclusion that some of it is going there. :)

I think being like Bill could have been a heck of a mess if the Treasury hadn't backed Fannie and Freddie. That would have been an interesting implosion. Granted, there may be a few too many central banks with guns at our heads for that to happen. More's the pity.

Amen to supporting Ron Paul like candidates.