by Calculated Risk on 10/11/2006 04:46:00 PM

On Bloomberg Video: Gross of Pimco Says Oil's Drop May Cut Demand for Risky Bonds.


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October 11 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management, and Paul McCulley, managing director, talked with Bloomberg's Brian Sullivan in Newport Beach, California, yesterday about prospects for a U.S. economic recession, the outlook for the U.S. housing market and Federal Reserve monetary policy, and the impact of falling oil prices on the demand for assets such as corporate and emerging-market debt.(Source: Bloomberg)

Bill Gross on housing prices:

"I don't think the Fed can afford to see the U.S. housing market nationally decline by more than 5%, or perhaps at an extreme, 10%. We've never had those types of declines and you don't want to replicate the Japanese experience of the 1990s. Admittedly that was commercial real estate. But a Real Estate bubble unwinding is a dangerous bubble unwinding, and we don't want to see anything more than minor negatives in terms of prices."

Excerpt from Bill Gross on events that would make him change his view for next year:

"We could see stronger growth, as reflected in a housing market that levels off and maybe even comes back; stranger things have happened. That would be a scenario that would certainly flip-flop how we see things happening.

The second scenario would obviously be weaker growth - housing market decimating the real economy, not just as reflected in housing starts and the like, and housing employment, but in consumption and mortgage equitization and those types of things. That's the big question mark and no one really knows. Every economist on Wall Street, every Fed researcher, is trying to analyze exactly what this means for the consumer. We're just going have to find out."