Ever since the bombshell announcement of Bond King Bill Gross' decampment from Pimco to the much smaller Janus Capital, Wall Street pundits and players have been offering their takes on what happened. (Ours is here.)
But the best and most telling analysis we've seen comes from the estimable Josh Brown, proprietor of the Reformed Broker website and author most recently of the book "Clash of the Financial Pundits: How the Media Influences Your Financial Decisions for Better or Worse." As you might expect, Brown gives an investment manager's view of the turmoil at Newport Beach-based Pimco.
The theme of Brown's post, "Do We Need to Fire Pimco," is that money managers have had reason to bail out on Gross' Total Return Fund for years; many have just been waiting for the right moment to pull the trigger. He dates the start of the disaffection period to one of Gross' most notable, and wrong, calls--his announcement in February 2011 that he was taking Total Return's allocation to U.S. Treasuries down to zero, from as much as 22% late the previous year.
The announcement shocked the markets -- Gross was "abandoning" treasuries, it was said. As Brown recounts the moment:
"Gross compounded the move by being extremely vocal about his rationale – he went so far as to call Treasury bonds a 'robbery' of investors given their ultra-low interest rates and the potential for inflation. He talked about the need for investors to 'exorcise' U.S. bonds from their portfolios, as though the asset class itself was demonic. He called investors in Treasury bonds 'frogs being cooked alive in a pot.' The rhetoric was every bit as bold as the fund's positioning."
It was also, as Brown relates, dead wrong. The treasury's 10-year generic bond yield fell from 3.58% at the time of Gross' call to 1.53 in July 2012. It's now 2.54%. Since bond prices move in the opposite direction from rates, Gross placed himself on the sidelines of a huge bull run. Within months he was admitting he had made a mistake, a big shock from someone with the closest thing to an infallible record up to then.