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Mohamed El-Erian’s sudden departure from PIMCO last month sent shock waves through the otherwise genteel bond market. There was talk of differing opinions about how the fund should operate. But these were quickly put to rest by a carefully managed PR campaign aimed at appeasing anxious investors, who were already reeling from one of the most disastrous years in PIMCO’s history.
Despite this, there remained quiet unease about why one of PIMCO’s most valuable and respected board members, a man who Gross himself had tipped to be his successor, had suddenly decided to up sticks and leave.
Something it seems, wasn’t quite right under the swaying palm trees of Newport Beach Calif. Home to the worlds biggest bond manager. So it came as no surprise this morning, when the WSJ broke a story about the truth behind El-Erian’s exit.
The article will make uncomfortable reading for Gross as he sips his morning cappuccino. Claims that El-Erian and Gross openly argued in the office, in front of at least twelve colleagues. Two of whom have now spoken to the journal.
“I have a 41-year track record of investing excellence,” Gross told Mr. El-Erian, according to the two witnesses. “What do you have?”
To Which El-Erian replied. “I’m tired of cleaning up your s—,” referring to conduct by Mr. Gross that he felt was hurting Pimco, these two people recall.
The conduct is likely to refer to decisions Gross made last summer, when during a rough time in the market, Gross limited the firm’s trading, restricting it mostly to sales aimed at raising cash to meet client withdrawals, according to three Pimco employees.
Some employees complained to Gross and El-Erian that they couldn’t buy inexpensive investments and that Gross didn’t seem to trust their abilities. Gross didn’t budge. He had restricted trading during rough patches before. These restrictions were longer, lasting for several weeks.
It’s also alleged that El-Erian told Gross that he needed to change the way he interacted with employees, Mr. Gross, 69 years old, agreed to make adjustments, several Pimco employees say.
The allegations come after an interview with the WSJ, in which Gross denied tension with Mr. El-Erian was a factor in his departure. “It had nothing to do with friction,” he said, although he acknowledged he can be difficult to work with. “Sometimes people will say ‘Gross is too challenging,’ and maybe so. I would say if you think I’m challenging now, you should have seen me 20 years ago.”
In response to the allegations, Gross called into CNBC where he told CNBC Anchor Brian Sullivan that “The conflict between Mohammed and myself is overblown,”. Note he didn’t dispute a conflict had taken place.
Gross also released the following statement: “For more than 40 years, Pimco has delivered superior results for our clients, consistently and during periods of extraordinary market volatility. We hold ourselves to the highest standards of excellence and performance, and I ask of others only what I demand of myself: hard work, dedication and intense focus on putting our clients first.”
I hope PIMCO’s PR team didn’t have anything planned for the weekend, because they’re going to be putting in some overtime.
LearnBonds: – Detroit poised to significantly haircut G.O. bondholders. – Last Friday, Detroit filed a proposal to reduce its $18 billion debt load and exit court supervision. The proposal offers municipal pension plans 50 cents on the dollar while G.O. bondholders could receive as little 20 cents on the dollar. This may come as a shock to G.O. holders as many believed that having a general obligation gave creditors more security.
Cola Daily: – Columbia Mayor Steve Benjamin appointed Chairman of Municipal Bonds for America. – Columbia Mayor Steve Benjamin has been selected to lead Municipal Bonds for America, a nationwide nonpartisan coalition of state and local governments along with brokers and dealers to protect and promote the value of tax-exempt municipal bonds.
Bloomberg: – Puerto Rico is outlier for wealthy fleeing tax hit: Muni credit. – Financial advisers to some of the wealthiest Americans see struggling Puerto Rico as an outlier in the $3.7 trillion local-debt market, leading them to add municipal bonds as the steepest federal tax rates in more than a decade loom.
Yahoo: – Why high yield bonds improve portfolio returns when markets tumble. – To recognize the benefits of portfolio diversification from high yield bonds, one needs to look at the returns from various ETF portfolios and compare. The table below captures select returns in past the five years and monthly returns since December 2013. We assume that the weight of each asset is the same in the portfolio, that is, the investor has equal exposure to all the ETFs.
MarketWatch: – Treasurys find holding pattern ahead of debt sales. – Treasury prices meandered lower on Monday ahead of $109 billion in planned government debt auctions.
Reuters: – Prices drop as equities rise, emerging market worries recede. – U.S. Treasuries prices fell on Monday, with some investors exiting the safe-haven asset class as Wall Street swung higher and worries dwindled about troubled developing economies such as Ukraine.
Donald van Deventer: – Google Inc. Versus Apple Inc.: A bond market ranking. – On February 21, 2014, the bonds of Google Inc. were the 18th most heavily traded of any reference name in the U.S. fixed rate corporate bond market. Another iconic name in technology, Apple Inc. (AAPL), ranked 21st. This is a rare opportunity to make a bond market comparison between the two names, which normally don’t trade in such volume.
Investment Week: – Why this strategic bond fund launched with 70% high yield. – Nordea’s recently launched strategic bond fund has a 70% allocation to high yield bonds in a bid to emphasise credit exposure and minimise interest rate risk.
IFR: – U.S. high-yield quiet but tone remains upbeat. – US high-yield primary activity was quiet on Monday but supply is expected to pick up with a positive market reaction to more M&A news reinforcing a firm tone in credit markets.
The Sovereign Investor: – Grab a 50% gain from this bond trade. – Would you rather get a safe 3% yield from U.S. Treasurys or a 7% yield from riskier bonds? A lot of investors are choosing the latter.
FT Adviser: – Ashmore hit by emerging market sell-off. – Emerging markets specialist Ashmore has suffered a fall in its assets under management and profits as the emerging markets sell-off hit the firm hard in 2013.
Short Takes: – Can emerging market bonds help us predict the next bear market? – We were recently asked in a handful of emails about the importance of emerging market bonds (PCY) relative to the S&P 500. The basic question was “should we be tracking the emerging market bond ETF (EMB) to monitor the health of the S&P 500 (SPY)?” Since the concepts are important relative to investment risk management, in this article we will explore correlation and causation, and address the question about emerging market bonds.
Morningstar: – Credit markets finish retracing emerging-markets sell-off. – At current levels, credit spreads are at the tight end of the range that we consider fairly valued, leaving only modest room for additional tightening.
Artemis: – The catastrophe bond yield advantage. – The return advantage provided by an investment in catastrophe bonds, over an investment in other forms of yielding debt instrument, has narrowed over the last two years, largely due to pricing pressure lowering yields on cat bonds more quickly.
abc News: – Bold bond moves to make now, before it’s too late. – Bonds are widely viewed as a low-risk investment that can fortify overall portfolios against the ups and downs of stocks. Yet, while they can reduce risk to portfolios through diversification, bonds themselves present risks that most investors aren’t aware of.
About.com: – Bonds aren’t as safe as they used to be, but they still provide portfolio stability. – The past few weeks have brought an uptick in the number of readers writing in to ask whether bonds can still be used as an “anchor” within the context of a portfolio invested in stocks, bonds, and other asset classes. Bonds’ ability to stabilize overall portfolio performance is typically one of their key attributes.
StreetAuthority: – Here’s how to invest like america’s wealthiest elite. – For the past few months, I’ve been telling readers of my High-Yield Investing newsletter about the secrets of America’s privileged. You see, wealthy folks in the U.S. invest differently than most of us. And I believe it’s worth examining their investing habits and taking a cue from their practices.
FierceFinanceIT: – Tech savvy ETF APs embrace bond trading technology. – A small but growing class of traders may be bringing their own style of trading to bond markets. These traders hail from the exchange traded fund (ETF) space, where growth in fixed-income ETFs has remained firm despite higher interest rates.
WSJ: – Cash flies into bond ETFs. – Investors are piling into exchange-traded bond funds at the fastest clip ever, the latest sign of a bond-market revival driven by uneven economic data, emerging-market volatility and the thirst for income-generating investments.
ETF Trends: – Bond ETFs: The new black. – After being punished by soaring Treasury yields in 2013, some bond exchange traded funds are the toast of the town in 2014.
Gross: Clients come first. Performance and service that’s our mission. Always has been. Always will be.
— PIMCO (@PIMCO) February 25, 2014
Strong demand at today’s 2yr gets this week’s Treasury auctions off to a good start.
— AnthonyValeri (@Anthony_Valeri) February 25, 2014
INBOX: “The PIMCO Investment Committee is internally regarded as something of a joke. Just BG & a bunch of patsies. It’s a one-man show.”
— felix salmon (@felixsalmon) February 25, 2014
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