PIMCO’s Fed Forecasting Track Record
At the request of an interested party, an analyst of our acquaintance did a full review of PIMCO’s track record as a Fed forecaster.
Long story short, their public track is rather poor. Whatever insight PIMCO gleaned from being the world’s biggest bond fund was consistently overridden by their talking their book, rather than making good forecasts.
Indeed, I can suggest that a Bond fund manager forecasting either a drop in Fed Funds or the end of a Fed tightening cycle is no different than a long only equity manager advising investors to buy the dip. That is each of their inherent biases.
I did find the call demanding Greenspan cause a housing bubble, and the drumbeat for a GSE bailout to be in hindsight, to be terribly wrongheaded . . .
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UPDATE: June 19, 2009 9:44am
A fund manager just called to point out that there is another, potentially more serious issue: PIMCO is a giant advertiser on various FinTV channels, and they have had an open mike at these outlets. This manager wonders if the lack of challenges to consistently poor calls is mereyl an affectation, or a related conflict of interest. I have no idea, but it sure is an interesting question.
If anyone from PIMCO wishes to respond, I will give them the platform to respond to any of these issues.
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June 19th, 2009 at 9:45 am
Wow, begging for a housing bubble and lots of big mistakes in there. How do you get to go on CNBC as an expert all the time when you are wrong this often?
BR, the link on the bottom doesn’t work.
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BR: Fixed!
June 19th, 2009 at 10:02 am
from the link
money line- July 2001- Paul McCulley (PIMPCO)-
“And while most of those homes are levered, there is room to lever them even more, from both a balance sheet and an income statement perspective . . .There is room for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism. And I think the Fed has the will to do so, even though political correctness would demand that Mr. Greenspan deny any such thing”-
wow- that is un-fucking believable- the fix was in- it’s all a big machine- to keep the schmo’s on the hamster wheel- while they inflate asset prices to keep the economy from crashing-a charade and a mass hoodwinking of the American people- and all that is required- is-
excessive indebtedness by the American people and a belief that you are being told the truth
June 19th, 2009 at 10:07 am
I and I hate to be a negative nancy this early in the day… but its the same with just about everyone who comes on fintv…
They have positions to talk up and predictions to make… seems to make for good tv.
Only natural they should talk up what they own, because they’re supposed to be the smartest guys in the room, and if they own it, then we should too right? (snark engaged)
And the sponsorship point, thats just irrelevant… (ultrasnark engaged)
Hard to not put a cynical spin on this, but thats just the way it is.
If I sound bitter, its because I first learned about the capital markets through CNBC and the WSJ… cant tell you how much money I lost doing dumb shit related to something I heard from someone through either outlet. In retrospect, thats all just a part of the game. I’ve put alot of time into this game now, and I see the distinctions. But unfortunately, for many of their core viewers, employees of the brokerage industry, business owners, and the 401(k) casual investor with some money to throw around chasing “tips” and predictions- they might never make that distinction.
“Tips are for waiters, not for traders.”
Maybe there should be a “fiduciary” clause applied to folks who espouse market wisdom, predictions, and “investment ideas” on MSM outlets… just a thought.
June 19th, 2009 at 10:09 am
I-man,
regarding your very last line above, I agree. If I had my own show I’d make a habit of making everyone record the recs they make on the show, and when the return to the show we’d be discussing what those things did. Just like any other advisor needs to do with a client.
June 19th, 2009 at 10:19 am
Their public insight may have been poor, but I would attribute that mostly to pump and dump with bonds.
I remember Gross coming out and saying late last year that the Fed would have to buy RMBS from the GSE’s in order to get residential mortgage rates below 5%, maybe even going to 4%. He bought a bunch of ‘em just before the Fed announced plans to do just that. Then sold them a few months later.
PIMPCO knows wither the Fed goes. Don’t look at what they say. Look at what they do. It’s eery. I envision that Gross has a red phone on his desk directly connected to Bernanke, sorta like the ones used during the Cold War. The question I have is whether PIMPCO is the real shadow banking system.
June 19th, 2009 at 10:27 am
Right! Shouldnt they be held accountable?
It seems to me that with the level of scrutiny and regulatory oversight that a retail FA faces day to day- much more influence is held by the random guy on CNBC, Bloomberg, or FBN who comes on and says “But This” with often zero substance to back it up.
A lot of FA’s have to make clients sign blatant “Cover your Ass” disclosure forms just to sell out of a nonperforming asset and move into a new one… (I realize some unscrupulous ones take advantage of this through constant “flipping”… hence the disclosure forms) Meanwhile, they (the FA’s) have to sit across the table from the client and explain their rationale for losing money… which is a good thing, it holds them accountable. If they suck, or are idiots, they dont keep clients and are weeded out.
But some random piker from any major firm can come on a MSM outlet and recommend ideas to millions of viewers and not even have a trackrecord published?
Sounds kinda ridiculous when you think about it.
June 19th, 2009 at 10:31 am
@ Curmudge-
You better Registered Trademark PIMPCO fast before it becomes the name of my new urban fashion line of graphic Tee shirts.
And wasnt it Mr Gross who was on fintv early this year saying basically- its a no brainer- just buy what the Fed and Treasury are buying… TARP bank preferreds and bonds???
What foresight.
June 19th, 2009 at 10:40 am
@I-Man, yeah, and usually just after he issues his “guidance” you come to find out that he’d already acquired a huge tranche of them, that he is slowly unloading them on all those folks he told to buy.
What I don’t get is how stock price manipulations like that are illegal, but bond price manipulations aren’t. Nor do I understand why no one seems to give a fuck that PIMPCO tm seems to be in direct collusion with the Fed on setting prices. Such behavior by Microsoft w/ say Google would get them both thrown under the jail.
June 19th, 2009 at 10:42 am
what I find interesting- is that after the NASDAQ crash- on CNBC and other financial sites- you starting hearing that the next big thing was housing- and that was where you should put your money- and the crescendo kept building and building- and it was pitched everyday as a no-brainer- and housing would continue to go up- until- the greater fools theory stopped working- and the market crashed-
my feeling is that was a planned event by the government and the market makers with the MSM through their financial networks and programs- only happy to go along-
scam of scams
June 19th, 2009 at 10:45 am
I said much the same about McCulley and Gross as forecasters back when I was writing over at RealMoney. One other thing I pointed out was that though PIMCO makes these forecasts, possibly in order to influence the markets, was that PIMCO doesn’t make much of its money off of the forecasts, but off of selling out-of-the-money protection on various fixed income classes. Links:
http://www.jstor.org/pss/4480698
http://marketthoughts.com/z20051020.html
http://alephblog.com/2007/06/13/pimco-in-theory-and-practice/
June 19th, 2009 at 10:52 am
I totally agree, ahab. It almost feels like we’re going through the same thing with the whole concerted “green shoots” meme by the administration and Wall Street and their enablers in the MSM. What’s the no-brainer today to pile into? Banks? Emerging Markets? Commodities?
June 19th, 2009 at 11:12 am
mannwich-
I am becoming ever more cynical- with each revelation- and that the current administration wants to make the Fed a super regulator is laughable
June 19th, 2009 at 11:34 am
Most forecasts are wrong because we don’t know the future…
June 19th, 2009 at 11:44 am
Like 99% of the guests on CNBC, he’s just talking his book?
June 19th, 2009 at 12:51 pm
The joke’s on all of you. McCulley’s “poor” Fed forecasting track record is just a red herring to throw you off-track from the obvious truth that PIMCO owns the Fed! If the humongous windfall profits that would deluge PIMCO under Geithner’s PPIP taxpayer-funded bond profit orgy were not enough to clue you in on who runs this country, then you guys are completely hopeless.
I think it goes something like CNBC owns the Fed and Treasury, but PIMCO owns CNBC. Either way, I find it a bottomless well of amusement that everyone here continues to pretend these markets are some sort of random walk when it’s a well-orchestrated symphony. All your base are belong to CNBC…and PIMCO.
Ritholtz, I am trying my 49th retirement today. Can you please lay off topics as juicy and irresistible for me as PIMCO?
June 19th, 2009 at 12:56 pm
@ CNBC Sucks:
You said:
“Either way, I find it a bottomless well of amusement that everyone here continues to pretend these markets are some sort of random walk when it’s a well-orchestrated symphony.”
Yes… but the thing about elephants is they leave big footprints, and they cant move very fast without causing a large disturbance. This makes them particularly vulnerable to attack.
June 19th, 2009 at 1:09 pm
ben, et al
In a continuation of the deflation/inflation debate/discovery process, have you guys seen Hugh Hendry’s latest?
http://www.fundmymutualfund.com/2009/06/hugh-hendry-eclectica-fund-letter-to.html
June 19th, 2009 at 1:35 pm
Onlooker from Troy @ 1:09
I read the link. A lot of merit in the arguments.
Very few people are willing to acknowledge the dichotomy between commodities (on the one hand) and other measures of inflation (on the other hand).
June 19th, 2009 at 1:53 pm
Singer @ 11:34
There’s also the politics of “taking away the punch bowl”.
June 19th, 2009 at 1:54 pm
[...] concentrate on my own business. It has been a blast and a learning experience. I have written many goodbyes, but my final words on this blog will always be BIG TITTY [...]
June 19th, 2009 at 4:25 pm
Punch bowl indeed….When it’s all said and done I suspect that many people would happily attend the public hanging of Alan Greenspan.
Looks to me like folks are getting panicky….I see a flight to safety coming soon.
I got out of my TBT yesterday after a nice run and put it all right back in on GDX. I’m probably real early.
I’m now ~30/30/30/10
SDS/QID/GDX/GLD
Reading Nison’s Japanese Candlestick book right now…
“Candles Exhaust Themselves to Give Light to Men”
Happy Friday!!
Obligatory Music Video Link!!
http://www.youtube.com/watch?v=3KlVZ9CLg3E
June 20th, 2009 at 10:22 am
I really enjoy John Mauldin’s analysis, but I am often dismayed when he refers to his friend, Paul McCulley. Given the sheer number of other, possibly more objective credit analysts than anyone from PIMPCO, it seems incongrous to me. I am always immediately reviled by the “Masters of the Universe” style treatment anyone from PIMPCO, i.e. el Arian, McCulley, and the chroncially high pitched voice of Bill Gross, receives from FinTv. Bill Gross is to tinnitus as Paris Hilton is to STD. PIMPCO, PIMROCK, et al…they are all part of the kleptocracy.