November 12, 2007

Bill Gross sees the future

PIMCO bond fund manager Bill Gross recently said that the Fed can not afford to let the housing industry go down the tubes...

The Federal Reserve "cannot afford" to let U.S. housing prices fall sharply and will have to cut interest rates aggressively to prevent that from happening, said the manager of the world's biggest bond fund on Monday.

"A Fed cannot afford to let homes go down by 10 to 15 percent like we saw in Japan," said Bill Gross, chief investment officer of Pacific Investment Management Co. or Pimco, on CNBC Television.

Already, the housing market is facing turmoil in so-called subprime loans made to borrowers with shaky credit. Delinquencies are rising on subprime mortgages and defaults are piling up at record rates as home prices sink, pressuring consumers' desire to spend.

What does all this mean? The Fed will likely drop rates because a collapse in housing is the worst possible outcome. When that happens, the dollar will collapse still further making oil even more expensive and inflation a real concern. Which is why Gross is spending so much time buying assets denominated in anything other than the dollar.

Gross manages more than half of a trillion dollars for PIMCO.

Posted by mcblogger at November 12, 2007 10:59 PM

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