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Forbes – Can Gross Get His Groove Back? (May 2007)
Will Alan Greenspan help the bond whiz behind Pacific Investment Management get his mojo back? Star manager Bill Gross probably hopes so. For years Gross’ power to move bond markets has been comparable to that of Greenspan, the former Federal Reserve Board chairman…This week, Pimco signed Greenspan to a consulting agreement, meaning Gross will be privy to the “Maestro’s” musings of where macroeconomic trends are heading. Gross has criticized Greenspan in the past, but acknowledged in a television interview Wednesday afternoon that he’s made mistakes, too, namely his September 2002 prediction that the Dow Jones industrial average was headed to 5000. Gross said in terms of forecasting and positioning, two not necessarily like-minded heads are better than one. “In combination we might have some better answers,” he said. It’s not clear just how chummy the two will get, however. This is Greenspan’s first venture into talking with a business contact about Fed policy since he stepped down from the board in January 2006. Greenspan will only talk to Gross privately. An e-mail from Gross to Greenspan Wednesday morning asking the former Fed chief what the Fed will do with interest rates has gone unanswered, Gross said Wednesday afternoon.
Comment The story above, from roughly a year ago, highlights the beginning of Greenspan’s relationship with Bill Gross. At the time, many dubbed them the Odd Couple, wondering how the two would get along. As we know from more recent stories, this relationship has made Pimco “billions of dollars.” We couldn’t help but wonder how conversations between these two went:
Maestro: Bill, I really screwed things up by holding the funds rate at 1.00% until June 2004. I will never admit it, but since you pay me much better than the Fed, here is my secret internal research showing how bad things will get.
Understand that this can never see the light of day as my reputation is more important than an honest conversation about the Fed’s role in creating bubbles. If it did, Sally Quinn would disown me and I would never make another A-list cocktail party again. That alone could end my marriage with Andrea.
If anyone presses you on the reasons for the decline in housing, just go with that Berlin Wall story I’ve been spewing in my canned speeches. Those stupid foreigners that pay for those speeches actually think it’s insightful. Go figure.
Bond King: Wow Alan, this really is bad…much worse than I thought. Thanks for the insight. Any idea how to make money on this?
Maestro: My other consulting client I showed this too was John Paulson. He shorted the ABX and other CDS instruments in trades I do not understand. He must really like the trade, because I think he piled on it for a fairly large sum of money.
Bond King: Alan, you have said that the markets would police themselves and would never allow speculators like hedge funds to borrow these kinds of sums. Isn’t this why you were such a staunch opponent of derivative regulation?
Maestro: Are you new here? You have to remember that there is the stuff I have to say and then there is reality. It’s bad enough that Sarbanes made me admit that monkeys throwing darts at the blue chip economic survey are better forecasters than Don Kohn’s group, but don’t you go buying all that other BS as reasoned analysis.
Bond King: Alan, you’re paying for yourself right now. I sure am glad I hired you.
Maestro: The decorator Andrea hired for our Watergate apartment is earning his keep right now too. We had no idea how poorly the Dole’s kept that place until after we closed. You would think they financed it with a subprime ARM for speculative purposes. How can people live that that? The jacuzzi tub is so 1990.
Bond King: Alan, are you interested in stamp collecting?…