World's Largest Bond Fund Manager Heads For The Lifeboat

Bill Gross manages the world's largest bond fund.  If you own bonds in your retirement, either through his PIMCO fund or some other branded variant, there is a good chance he manages some of your money.  Yesterday he announced he has abandoned the US bond market in his largest fund.  As of January 2009, his $237 billion Total Return Fund held zero government related debt.

People expecting a stampede from the US bond market are going to be disappointed.  Bond holders are not a herd of animals who follow each other blindly.  Bond holders are a mass of individuals with differing opinions and levels of sophistication.  If the US bond market collapses it will be more subtle.

The US bond market is akin to the Titanic.  Bill Gross is a first class passenger who sensed the danger after the collision and acted on it.  He didn't run for the lifeboats screaming.  He casually made his way out of the ballroom; all the while smiling and engaging in cocktail party banter.  He has donned his lifejacket and taken his seat in a lifeboat long before most passengers and crew realized they were in mortal danger.

Last night most of the other fund managers were still in the ballroom drinking and laughing as the crew and captain assured them all is well.  The poor retail investors were locked in steerage mostly unaware of their impending fate.  This morning the folks in first class will notice Bill Gross has left the party and the mood will subtly change.  The crowd will soon start to drift towards the exits.

But even if more of the passengers are now aware of the danger they all face one immutable fact.  There are simply are not enough lifeboats to save everyone.


Tom Suhadolnik

Bill Gross manages the world's largest bond fund.  If you own bonds in your retirement, either through his PIMCO fund or some other branded variant, there is a good chance he manages some of your money.  Yesterday he announced he has abandoned the US bond market in his largest fund.  As of January 2009, his $237 billion Total Return Fund held zero government related debt.

People expecting a stampede from the US bond market are going to be disappointed.  Bond holders are not a herd of animals who follow each other blindly.  Bond holders are a mass of individuals with differing opinions and levels of sophistication.  If the US bond market collapses it will be more subtle.

The US bond market is akin to the Titanic.  Bill Gross is a first class passenger who sensed the danger after the collision and acted on it.  He didn't run for the lifeboats screaming.  He casually made his way out of the ballroom; all the while smiling and engaging in cocktail party banter.  He has donned his lifejacket and taken his seat in a lifeboat long before most passengers and crew realized they were in mortal danger.

Last night most of the other fund managers were still in the ballroom drinking and laughing as the crew and captain assured them all is well.  The poor retail investors were locked in steerage mostly unaware of their impending fate.  This morning the folks in first class will notice Bill Gross has left the party and the mood will subtly change.  The crowd will soon start to drift towards the exits.

But even if more of the passengers are now aware of the danger they all face one immutable fact.  There are simply are not enough lifeboats to save everyone.


Tom Suhadolnik

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