Bill Gross - Buyer Stike

Man what a day. I'll post on that later.

Interesting stuff out of Bill Gross today. He basically joined the likes of Robert Rodriguez and Jeremy Grantham in a self ascribed buyers strike.

First you have a video of Bill Gross interview.

http://www.cnbc.com/id/15840232/site/14081545/?video=844044063&play=1

Second is a video of Cramer with an analysis of what Bill Gross said. For once he is not totally exaggerating. This is big out of Bill Gross.

http://www.cnbc.com/id/26547623

Pimco’s legendary bond investor Bill Gross said during “Street Signs” Thursday that his firm would be staying out of any and all bank offerings for the foreseeable future.

This is the letter today

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/Investment+Outlook+Bill+Gross+Sept+2008+Bull+Market.htm

The big statement or atomic bomb in this letter:

Over $400 billion in bank- and finance-related capital has been raised during the past year, a decent amount of it, by the way, having been bought by yours truly and my associates at PIMCO. Too bad for us and for everyone else who bought too soon. There are few of these deals now priced at par or above, which is bondspeak for “they are all underwater.” We, as well as our SWF and central bank counterparts, are reluctant to make additional commitments.

What he said here combined with the interview on CNBC are monumental statements.

More on the Bill Gross Interview

One thing I love about blogging is it creates discussion. I did a post on Bill Gross interview yesterday and an investment friend of mine explained why he came to a different conclusion. As I have said before all this is an art not a science., just like investing. I figured it would be interesting reading for some of you.

His response

By way of background, in addition to the BIA training I was also an Intelligence Officer. Part of my training included 6 months of formal intelligence training, to include interview/interrogation techniques taught by acting CIA interrogators. Bottom line is we did not view is behavior to be deceptive and felt you may have "over-interpreted" a few of the signs. This is actually a very common occurrence that, unfortunately, can be left out of brief investor training programs. As you mentioned, this stuff is more art than science, and we are just as likely to be wrong as you are.

One thing to keep in mind is that the indicators taught are designed to be evaluated in the context of a structured interview. Specifically, it's important to establish a 'base' of behavior patterns by asking a series of unrelated, fact-based questions. This allows the interviewer to identify trends/changes in these behavior patterns as indicators of deceptive behavior (the trends would obviously be clusters). Not necessarily a hard and fast rule obviously. The Gross interview was obviously not structured that way, and in fact, the initial questions asked were more opinion-oriented in nature, thus it is very difficult to set the base and identify indicators. I would also argue there was a bit of ambiguity in a few of the questions that left the answers subject to interpretation. You would typically want to structure the questions such that there is a more clear answer. Specifically, he asked if pimco was reducing 'risk' or 'exposure' to Lehman. That could obviously mean from a counterparty or investment standpoint, which are both sources of pimco's exposure to Lehman (and Gross may not be as informed on either aspect given his high level role). That's obviously just one example of a couple. Any ambiguity in the question will likely be amplified in the answer. We also did not notice the non-verbal clues, but again hard to judge given lack of a base from which to judge. If anything, he maintained consistent anchor points and body language. These are just the thoughts of two people, so again, feel free to discount and/or take with a grain of salt.

My Response

A couple of thoughts. Completely agree that the best use of BIA is under structured questions. You have general questions and then a trap question. However, during training we reviewed several interviews that were not structured. Bill Clinton being an example. So though that is ideal it is not a requirement. You would also prefer to see the entire body. All we have is chest up. At the 3:00 minute mark when he is cornered I felt like there was an anchor shift. A shift of weight looking at him from left to right. I also felt there a short boost of serial movements with facial muscles, the weight shift, and head moving. I try to watch every Bill Gross interview he does and he is always very stoic and very still. Even in this interview the first 2 minutes there was hardly any movement where as at the 3 minute mark there seemed to be a burst or cluster to me. By any standards slight and maybe nothing but for Bill Gross it seemed like alot.
It is definitely an art and at this point I don't even know if is usable. I would be willing to bet though that PIMCO is doing something. Could be very wrong.

His Follow Up Thought

Definitely hear you on the movements at 3 minute mark. My buddy and I felt that it could have been frustration given ambiguity of questions and potential lack of awareness of the firm's specific trading and/or counterparty activities. Obviously lots of different ways to go with it. Definitely agree that structure is not necessary. In a real interrogation setting, different techniques would have been used if there wasn't opportunity to structure the interview and the interviewee exhibited signs of deceptive behavior….and no, I don't mean waterboarding. :)

Closing

So there are differing thoughts. Talk about intellecutally exhilartaing!! Like I said yesterday there is no way I would short it based soley off the PIMCO intereview. I do think think it adds to the overall probabilities in a downside scenario.

Bill Gross

On Bloomberg.com (no link) Bill Gross had a good interview talking about the 500 billion euro liquidity injection and also what to look for with the auction tomorrow by the FED. I highly recommend the video.

In general he said you need to look at the bid amount and the clearing price. If it is above 4.75 he said we have liquidity problems and you can expect the Fed to potentially be aggressive in January.

Latest from Bill Gross

Bill Gross monthly commentary is finally here. He was running late a few days more than normal. Can be read here.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+December.htm

The publicized and photographed overnight "runs" on Countrywide and the UK’s Northern Rock in mid-August were nothing compared to what’s taking place in the shadows of the real banking system. Credit contraction, with its inevitable companion of asset destruction, is spreading with the speed of an infectious bacterial disease.

and

First of all, history would point out that Fed easing cycles during prior recessionary or near recessionary economies have invariably dropped to 1% Fed Funds rates when calculated on a "real" or inflation-adjusted basis. With PCE core levels at 2%, a destination of 3% would therefore be a reasonable current target.

and

Standby for a tumultuous 2008 as the market struggles to move from the shadows back into the sunlight of sounder banking and financial management, accompanied by Fed Funds levels at 3% or lower.

Several of Bill Gross comments over the past month has almost made Jeremy Grantham sound like a raging bull.