Reflections of a Bond Market Addict

Bill Gross is a wealthy man; he sold his stamp collection for more money that most Americans ever see in their life. Why does he keep working? Because he loves to play the game:

An authentic global financial crisis has led to sixteen-hour days and little time for gardening or the golf course for that matter. Still I’m not complaining – just explaining. As my wife Sue tells me every once in awhile, “You don’t have to go to work, you know.” Nor, I suppose, do I have to spend a Sunday afternoon writing Investment Outlooks, but here I am. Because, it only takes a second to realize how exciting this all is. The current crisis is like putting together the world’s largest jigsaw puzzle and recognizing you’ve completed the borders and a lot of the interior patterns. Can’t stop now. PIMCO

Bill is giving us all a present for his birthday, which is one of the most succint reasons to avoid the stocks of banks and brokers:

The Fed’s current invitation for investment banks to join the “discount window club” is a similar validation. It will however, come with a price tag. There seems no way that current reserve requirements for banks will not in some nearly uniform way be imposed on investment banks. Leverage and gearing ratios of securities firms therefore, will in a few years resemble those of commercial banks themselves resulting in reduced profitability for major houses such as Goldman, Lehman, and Merrill Lynch. Currently investment banks have only 50% of the capital base of standard commercial banks. If the two are to approximate each other either through regulation or moral suasion, these Shadow banks will likely be forced to raise expensive capital and/or reduce the bottom line footings of their balance sheets.

If you want to make the big bucks? Go bug Peter Thiel for a job. Pitching in to help run a successful asset management operation is looking more appealing every day. No doubt Mr. Gross could agree.

Happy Birthday Bill.

When I’m Sixty-Four
Pimco Investment Outlook

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