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Pimco's Bill Gross on the Fan/Fred rescue: "We like it"

September 7, 2008 |  3:14 pm

Bill Gross, the bond market guru at investment giant Pimco in Newport Beach, told my colleague Peter G. Gosselin on Saturday that he wanted to "see the money" in a federal rescue plan for Fannie Mae and Freddie Mac.

So how does $200 billion sound? I asked Gross today.

"We like it," he said. "We think it’s a positive step."

GrossfotoGross has been agitating for months for a bigger federal role in bailing out the sinking housing market. He acknowledges his critics, who say he’s "talking his book": Because Pimco is a huge investor in mortgage-backed bonds of Fannie and Freddie, the firm and its mutual funds stand to benefit now that the government is stepping in to assure that the companies stay solvent. Pimco also will be helped as the Treasury begins to buy mortgage-backed bonds in the open market.

But Gross has asserted that the feds needed to act for the greater good of the economy and the financial system, not just for the continued health of his Pimco Total Return bond fund, the world’s largest. The $130-billion-asset fund is up 3.5% this year, ranking it in the 96th percentile for performance among bond funds.

Gross said he believed that the Treasury’s rescue plan would go a long way toward improving sentiment in the financial and housing markets.

For the financial system, "The Category 4 hurricane has been downgraded to a tropical storm," he said.

He predicts that mortgage rates will fall this week as the rates that Fannie and Freddie pay to borrow money begin to decline.

He also expects the stock market overall to rally Monday.

And Gross has revised his estimate of how much more of a decline is in store for home prices. He had been expecting average home prices nationwide to fall an additional 10% to 15%. With Fannie and Freddie preserved, he sees prices bottoming after a further decline of 5% to 10%.

But that isn’t his forecast for California, where market conditions are much worse and likely to stay that way, he said.

Photo: Bill Gross of Pimco

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