Posted on 08/27/2007 11:02:48 AM PDT by Hydroshock
Bill Gross, the Pimco bond guru, is like the old E.F. Hutton: When he talks, people listen.
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The question right now is whether his words always match his reputation.
Last week, Gross grabbed the headlines by warning that the housing slump could lead to devastating economic consequences. He argued that a 10% fall in prices nationwide could set off price deflation of a kind not seen since the Great Depression, while waves of mortgage defaults could undermine confidence in the financial system here and abroad.
Gross concluded by urging President Bush to launch an emergency, New Deal-style federal bailout of distressed homeowners to forestall disaster.
For an alternative view, you could talk to a less well-known bond guy, like Tom Atteberry. He's the co-manager of the $1.75 billion First Pacific Advisors New Income (FPNIX) fund. His offices, in Los Angeles, are a short drive from Gross' suite in Newport Beach.
Atteberry certainly doesn't question the depth or scale of the housing slump. He believes the market could keep falling well through next year. He successfully kept his fund clear of risky mortgage-backed paper, and he warns that it is still "too early" to start bargain-hunting.
The history of past crises leads him to believe that that moment may not come until later this fall, some time between October and December.
(Excerpt) Read more at thestreet.com ...
The fact that it's Gross & Pimco calling for a bailout tells me just how heavily exposed he and his funds are to the CDO/CMO garbage.
The top five holdings of Pimco's Total Return Fund are as follows.
1) Fannie Mae
2) Fannie Mae
3) Fannie Mae
4) Fannie Mae
5) Fannie Mae
And here I was wondering why Bruce Bochy was commenting on the sub-prime market when he should be much more concerned with managing the Giants. :=)
Or, in this case, no taxpayer ‘sun’ should shine on anyone.
Well the rain too falls on the just and unjust alike.
Interesting point. Maybe it's time for the Ultimate Debt Jubilee. Let's have a government decree whereby all mortgages are torn up, and every American now owns his home completely debt-free. A whole bunch of financial institutions will collapse, but hey, that's life.
When the tide goes out, it's easy to see who's swimming naked....
Sin loy, minoy.
It’s not a good idea to interfere with the work of the Invisible Hand.
bump
None of the articles mention private mortgage insurance, these high risk loans required PMI for mortgages with less than 20% down.
You could, frankly, go further. Many other forgotten people rented during the real estate bubble. They wisely shunned the hype and refused to take on too much debt to buy a home they couldn’t afford.
Where are they now?
If politicians jump on Gross’ proposal, these people would be forced to pay higher taxes in order to save other, less prudent people from the alleged indignity... of having to rent.
The quote says it all in a nutshell.
Overall, a very well reasoned and rational assessment of what should be done and of what to expect and why. Home prices in some areas went up so fast and so high, artificially, that a good bump down is warranted. This is a crisis, not a catastrophe. In my finantial ignorance, I expect to see the economy in a mild recession next year, before a healthy economy bounces back strongly. Who knows?
Nice balanced assessment without the extemism either way.
Great post. Thanks!
Well all you need to know is to go look up the chart of, say, Radian (RDN).
I wouldn’t be all that worried about a recession, unless the consumer gets really spooked, but that doesn’t seem to be happening. Just last week new home sales number came up as a big upside surprise - ie, there is still an underlying bid to the housing market. But it’s definitely a buyers market.
One thing about new home sales, it is a lagging indicator. Most new home sales contracts are sign months before the sale occurs. Builders like to have buyers with approved credit signed for a house before they break ground.
PMI was gotten around by doing a 100% loan as a 80% loan and a 20% loan ,, most of the time the borrower went for 103% or 105% of the selling price to cover closing costs too... when you add in a 6-7% real estate commission and the (reported) 6.5% average drop in real estate values (some markets are -1% some are -20%+) the person who bought anywhere near the top better be saving every penny for when their 2/1 ARM resets..
Don’t you wish you had puts on RDN before July!! WOW .. I’ve been buying puts on “indulgences” that people used to buy with the “home equity piggy bank” ,, namely HOG..
And those of us who already do ? What do we get ?
Why should I have to pay my student loans?
Debt Jubilee indeed.
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