Buy When The Others Are Selling

Pimco's is working to raise money for a $5 billion fund to purchase tranches of depressed mortgage-backed debt (see London Telegraph Telegraph article and Bloomberg Bloomberg article). Pimco managers are meeting investors to gain commitments for the new fund, called the Distressed Senior Credit Opportunities Fund (already dubbed Disco). The fund will invest in senior and super-senior securities backed by commercial and residential mortgages. Of interest is that while the fund will look for securities backed by traditional home equity, credit cards, and auto loans, the focus of the fund will be more international. Given the senior nature of the debt, the fund will be less risky than some other debt funds. Subordinated debt, selling at even more distressed levels, is still raising concerns. The current move appears more opportunistic than an indication that the credit issues are behind us. As seen recently with other similar investments by John Paulson and Goldman Sachs, those with the capital can often name their price and define their terms. Just a new spin on the golden rule: "Those with the gold make the rules."