One Man's Pain is Another Man's Gain; Pimco Looking to Swoop in and Buy Mortgage and Municipal Debt

Over the past week or so, we've heard of three different situations in which companies have had to dump high-quality assets such as municipal bonds and mortgage loans because of forced margin calls.

In situations such as these, the assets are sold off at usually firesale prices as banks put the clamps down and increase the pressure on the funds to sell and minimize their exposure. The result is bargain basement prices for the savvy investor.

In this past week, Peloton Partners LLP, Thornburg Mortgage Inc. and Sailfish Capital Partners have all been forced to start liquidating their positions because of forced margin calls.

In the case of a margin call, you don't really have time to sell your positions in an orderly manner, especially if you have a large amount of illiquid holdings. This results in assets being sold at extremely low prices, which creates opportunities for an investor such as Bill Gross of Pacific Investment Management Co., aka PIMCO.

Gross, one of the most savvy investors of all time, has publicly stated that he will be moving his firm's money into these assets that have been "unwound and sold without discretion". There is definitely a tremendous opportunity here, and the fact that Gross is so aggressively and publicly putting his firms money to work tells me that this is a once in a lifetime type of investment opportunity. Normally Gross plays it close to the vest, so his strong words lead me to believe that he is really excited by this opportunity.

The $64,000 question is: are we near the bottom in these investments, or will there will further hedge fund fallout throughout the rest of 2008 that will lead to even more distressed prices in these assets?

Filed under: The Economic Meltdown | General Market News