Exposé: Bill Gross Caught "Red Handed" Talking His Book

One of the travesties of financial reporting in the U.S. is that fund managers are allowed to go on national television and discuss individual stocks/bonds that they have positions in. Instead of providing an honest and unbiased opinion, most fund managers use the opportunity to "talk their book" in other words - talk up a stock/bond so that gullible investors rush in, while the fund manager off loads his/her portfolio at a good price. Countless investors suffer as a result, but the regulatory bodies do nothing. If insider trading is illegal, talking your book should be too. Unfortunately the whole game on Wall Street is geared towards transfering wealth from the small guy to the big guns running multi-billion dollar empires. Below we reveal red hot evidence that none other than the mighty Bill Gross of the $1 trillion bond fund PIMCO, has been talking his book and shafting investors in the process.

Back in October 2009, we had reported that much to our surprise, Bill Gross was out advocating that folks BUY US Treasuries. In our October 27, 2009 report titled, Is a Stock Market Correction and a Dollar Rally on the Horizon?, we had questioned his call to buy U.S. Treasuries, writing:

We find it extremely curious that Bill Gross of PIMCO, the world's biggest bond fund has been going around urging people to buy U.S. Treasuries (USTs) since late September. His call to buy USTs certainly flies in the face of all financial logic, given that the Fed is soon to end its quantitative easing (QE) program to buyback $300bn of USTs in October. A removal of Fed support from under the USTs, coupled with an economic recovery (as Bernanke would like us to believe) should logically cause UST prices to fall (yields to increase).

Then why is Gross pushing to buy USTs especially the long end of the curve, which according to Gross will flatten further (yields will fall, prices will rise)? Is he merely talking up his book? Why would Bill Gross a very smart man, who is most definitely a Fed “insider” (Bernanke's ex-boss Greenspan works for PIMCO), risk his reputation and go out and urge folks to buy Treasuries?

At that time, we had concluded that perhaps Gross was acting at the behest of the Fed:

Our thesis is that he is probably acting at the Fed's urging. The Fed is aware that once QE stops in October, there is a huge risk that UST prices will fall and rates will go up choking a nascent economic recovery.

Well turns out, not quite. Bill Gross was indeed talking up his U.S. Treasury holdings, while he worked furiously behind the scenes and spent much of 4Q 2009 (October - December 2009) off-loading his U.S. Treasury holdings onto gullible investors. Zero Hedge reports that Gross sold $20bn of U.S. Treasuries in November alone. And after he has off loaded much of his position, Bill Gross is NOW advocating that people sell U.S. Treasuries! According to a January 7, 2010, WSJ report:

Bill Gross, one of the most influential investors in the global bond markets, said Wednesday the trade in 2010 should be to buy German government debt and sell U.S. Treasuries and their peers in the U.K.

Recently, Pimco has started to cut its Treasury holdings again and has parked the proceeds in cash or cash-equivalent assets to prepare for the withdraw of monetary stimulus. With major central banks this year set to start withdrawing the past two years' huge monetary stimulus to rescue banks and the broader economy, Mr. Gross warned that interest rates are likely to be pushed up in the major economies, particularly in the U.S., U.K. and Japan.

Can Bill Gross a seasoned professional bond investor, seriously convince us with a straight face that he changed his view point, going from advocating that folks BUY Treasuries to advocating folks SELL Treasuries, all in a span of under 3 months? In addition within 3 short months he has gone from pushing a flat yield curve to a rapidly steepening one. And all this false advocacy in light of the most OBVIOUS fact, which we at the Firecracker Report have pointed out as far back as October 2009: Once the U.S. Government ends its $1.7 trillion quantitative easing in Treasuries (in October 2009) and Mortgage Backed Securities (in March 2010), long term U.S. Treasury interest rates are bound to go up and prices will fall.

Here is the graphic evidence of Bill Gross' investment advice displayed on the 30-year Treasury bond futures price. The graph says it all - No sooner did Gross (one of the biggest US Treasury holder) offload his Treasuries in Oct - Dec at a good price of 118-123, the Treasury market collapses and you ordinary folks out there are now being asked to sell at 114-117:

Note:

In our October 27, 2009 report titled Is a Stock Market Correction and a Dollar Rally on the Horizon?, we had linked to a CNBC video where Gross had advocated Buying U.S. Treasuries. In a curious development that video has been removed by CNBC. So enclosed below are links to other articles that quote Bill Gross' bullish U.S. Treasury position in September-October of 2009.

1. Sept 29, 2009: Pimco’s Gross Buys Treasuries Amid Deflation Concern

2. Sept 16, 2009: Pimco’s Gross Boosts Government Debt to 5-Year High