- The Federal Reserve needs to take a more active role in stemming the housing crisis, possibly by exchanging Treasury notes for mortgage notes, Pimco Bonds Chief Information Officer Bill Gross said on CNBC.
- Gross said the Fed's move to increase the allocation for its Term Auction Facility will help the markets, but it needs to be more aggressive to help rally the real estate market. "I think the increased TAF facility this morning will help, but in effect it's sort of a small step for a Fed chairman," Gross said. "What really needs to be done is for the Fed to come in and to lower long-term mortgage rates."
- Gross suggested the Fed can do so by exchanging Treasury securities for mortgage securities. He compared the idea to something called Operation Twist in the 1960s, where the Fed sold Treasurys and bought mortgages.
- The TAF move, he said, "doesn't really provide a floor for mortgage prices and a ceiling for mortgage yields, which is incumbent I think in order to stop the slide of home prices. I mean We still have 30-year Fannie Mae conventional mortgage at 5 3/4 which means 6 1/4, and 7 percent-plus for jumbos. (I didn't know it was the Fed's job to put a stop in the slide of home prices - I didn't see that in their charter? Could someone point that out to me, if you have that handy in front of you?) Egad.
- "The housing market cannot be supported with those types of yields. The Fed needs in effect to buy the mortgage market and not to basically lend on it."
Free market capitalism baby.... works until it doesn't. And then the bailouts begin.
On a related note, I was glad to hear someone is going to become rich from the Thornburg Mortgage (TMA) explosion (it is certainly not going to be me) - like a good vulture, he is passing along the site of a car accident which should not of happened, and stealing the jewelry off the fingers of the mortally injured. Wow, I thought their book of business was just a terrible disaster - so awful that all their banks need to call in their loans immediately; imagine that, the smartest bond manager in America wants to soak up this paper hand over fist. This is simply frustrating to watch this train wreck happen as it's all caused by impatient and frightened banks. Especially when they've let technically bankrupt home builders off the hook for quarters on end.
- The manager of the world's biggest bond fund said on Friday he had bought hundreds of millions of dollars of Thornburg Mortgage Inc's (TMA) debt in the last few days.
- Bill Gross, chief investment officer of Pacific Investment Management Company, or PIMCO, said on CNBC television he has been buying "high-quality" rated Thornburg paper with yields in the "9, 10, 11 percent range." Gross manages the $120 billion PIMCO Total Return Fund.
- "Ultimately, we expect the paper that we're buying to ... provide close to double-digit-type returns," Gross said.
Wonderful. Just fantastic.
Long Thornburg Mortgage in fund; no personal position
