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Pimco boss says US in recession
By Matthew Garrahan in Los Angeles
Published: December 20 2007 21:07 | Last updated: December 20 2007 21:07
Bill Gross, founder of Pimco, one of the worlds largest fixed-income managers, has sounded a downbeat note on the US economy by saying it has gone into recession.
If I had to be bold Id say we began a recession in December, he said in a Financial Times interview, in which he called on the Federal Reserve to bring interest rates down to 3 per cent. The recession would last four to five months, he thought, but he added it would be prolonged if the administration and Congress failed to take some rather unperceived and unforecasted measures in terms of fiscal stimulation.
Mr Gross, whose company has $750bn of assets under management, was critical of US attempts to stabilise credit markets, describing the Super Siv and plans to freeze mortgage teaser rates as a temporary fix.
He said: What needs to be done is something fairly radical compared to Republican orthodoxy, which means spend money and absorb the deficit as opposed to pretending that youre fiscally conservative.
He was highly critical of the complicated financial instruments that have exacerbated the credit squeeze, saying the trend of over-leverage was a dying concept that will lead to an implosion at the edges . . . of this new financial marketplace. He also had stern words for hedge funds, describing them as a con.
A hedge fund, he said, was an unregulated bank. A bank isnt a con but a bank is a regulated entity. A hedge fund is not . . . its been a con on the government in terms of their unwillingness to regulate the industry.
Mr Gross founded Pimco in Newport Beach in 1971, building it into a powerful bond manager that continues to operate from southern California. With California one of the first places to feel the effects of the subprime crisis, Mr Gross said, the companys location alerted him early to the danger that has since wreaked havoc in world markets.
Pimco switched out of mortgage-backed securities in 2006 and for the first half of 2007 fell behind its competitors. However, in the second half it has outperformed the market as Wall Street has racked up billions of dollars in subprime-related losses.
He said: I think we had the strategy correct for a good 12 months. Its just that the markets and the economy didnt come our way until the last six.
What do you mean OOPS? If I understand you correctly, you are saying that we are in deep DODO. I agree. and It's going to get much worse before it ever gets better.oops!
Our Vice President Cheney, when he was CEO of Halliburton, bought competitor Dresser Industries and shut down all of their factories and fired 10,000 lazy bums! He has proved that he is a briliiant businessman by eliminating his competitors! And I trust our Vice President Cheney when he says deficits don't matter! He is a brilliant businessman. So all of the socialists who are against deficit spending can move to Cuba!
What do you mean OOPS? If I understand you correctly, you are saying that we are in deep DODO. I agree. and It's going to get much worse before it ever gets better.
Recession, seems no one knows, economics is farther from science than witchcraft sometimes. The NYT had 6 points of view last week and in the end it was wait and see. The housing bubble is scary as people are losing their homes or leaving them to escape the collection man, at least the internet bubble was only about inflated stocks. Galbraith's "short history of financial euphoria," should be required reading for all would be investors and the rest of us.
I disagree. I happen to consider it is much more serious that you would have us beleive. I think it is just the tip of a huge financial iceberg.The houseing bubble is vastly over exaggerated (though perception is reality where markets are concerned I suppose). Mostly people are worried about what will happen with the ARMs. there's a lot of news about them but in terms of the number of mortgages out there and whos in trouble it's a really small number. Roughly 80% of ALL mortgages get paid on time. Only abiyt 30% of all mortgages are also ARMs and when you consider that roughy 80% of people are paying there ARMs on time you see this is not the problem that the media would like you to beleive.
I disagree. I happen to consider it is much more serious that you would have us beleive. I think it is just the tip of a huge financial iceberg.
I don't know if he is correct or not, but I do know that Bill Gross is one of the most respected money manager in the fixed income markets on the planet.
http://www.ft.com/cms/s/0/6a7a056a-af37-11dc-880f-0000779fd2ac.html
Megan McArdle on Paul Krugman
Posted by: Jon Henke on Friday, January 11, 2008
Megan McArdle:
Paul Krugman is voting for doom. It's worth keeping in mind, however, that Paul Krugman has predicted eight of the last none recessions under the Bush administration.
Like Megan, I think "a recession seems likely-ish", but "Krugman predicts" is generally a good sign to bet the other way.
* "[R]ight now it looks as if the economy is stalling..." Paul Krugman, September 2002
* "We have a sluggish economy, which is, for all practical purposes, in recession..." Paul Krugman, May 2003
* "An oil-driven recession does not look at all far-fetched." Paul Krugman, May 2004
* "[A] mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived." Paul Krugman, April 2005
* "If housing prices actually started falling, we'd be looking at [an economy pushed] right back into recession. That's why it's so ominous to see signs that America's housing market ... is approaching the final, feverish stages of a speculative bubble." Paul Krugman, May 2005
* "In fact, a growing number of economists are using the "R" word [i.e., "recession"] for 2006." - Paul Krugman, August 2005
* "But based on what we know now, theres an economic slowdown coming." - Paul Krugman, August 2006
* "this kind of confusion about whats going on is what typically happens when the economy is at a turning point, when an economic expansion is about to turn into a recession" - Paul Krugman, December 2006
* "Right now, statistical models ... give roughly even odds that were about to experience a formal recession. ... [T]he odds are very good maybe 2 to 1 that 2007 will be a very tough year." - Paul Krugman, December 2006
Atrios, Huffington Post, Media Matters/Eric Boehlert, The Daily Show's Jon Stewart and Glenn Greenwald are constantly telling me things like how "it's worth taking note of just how constantly wrong all of our Most Serious Political Analysts are" (Glenn Greenwald, again) and how there should be some sort of consequence for that sort of relentless wrongness. Doesn't seem to apply to their own, though.
The stock market certainly believes the economy is in a recession.
Default rates for subprime adjustable rate mortgages reached 14.44% in the fourth quarter of last year, jumping 122 basis points in three months. The default rate rose 77 basis points for all subprime loans, up from 12.56 percent in the third quarter to 13.33 percent - the highest since 2002.
So 80% are being paid on time. That means 20% aren't. How does that compare to a normal housing market?
Would a 200 to 300 billion dollar loss from these defaults affect our economy?
If Countrywide is in trouble, it would seem that this just might be a serious situation.
Not to say anything about how serious it is to those who are losing their homes.
http://tinyurl.com/2a9hcy
Saying there may be a serious recession is not a vast left wing conspiracy.
