Ben Bernanke Capital May P&L: ($115) Billion

For all the attention paid to the 1.9% drop in PIMCO’s $293 billion Total Return Fund in the month of May following one of the worst months for bonds in a long while, perhaps a far more important question is what happens when one mixes the world’s largest actively managed, fixed income portfolio, that of the $3.4 trillion hedge fund located at 33 Liberty Street, and its DV01 of over $2.5 billion, with the 46 bps move in the 10 year in the month of May, and gets a P&L of ($115) billion, or double the said hedge fund’s total capital.

The hedge fund in question is of course the Federal Reserve Bank.

While no LPs, aka taxpayers will be concerned at the biggest ever monthly “loss” of 3.5% just yet, because it is simply on “paper”, at what point will that most precious of central bank commodities – fiath that the bald man behind the curtain knows what he is doing – start running in short supply? And, even worse, how long before the Fed has to start paying ever more and more reserve interest to the same banks (the majority of which are foreign) so reviled for being bailed out in the first place, until one day, it goes cash flow negative and has to request a bailout from the US Treasury and thus, the US people?


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