Orange County Coastal News

- Robert Larsen April 16, 2010

After making a killing by accurately predicting the real estate collapse,   Bill Gross, Money Manager at Pimco, now sees real estate an investment opportunity.

According to CNBC.com, Bill Gross told the TV channel this morning,

Both commercial and residential real estate are reaching a bottoming point and possibly even prepared to turn higher, said Gross, CIO of Pacific Investment Management Co., or PIMCO, the world’s largest bond fund. With stocks likely to return 5 to 6 percent and bonds 3 to 4 percent, he said, investors would be wise to start looking at real estate opportunities. “Ultimately the riskier assets will be the less the risky assets,” he said. “I wouldn’t suggest moving into those particular sectors at the moment but ultimately risk and reward go together.” Lower debt and better lending rates will make real estate attractive, he added.

Bill Gross, the Pimco bond guru and “manager of the decade,” thinks interest rates will be relatively flat in 2010.

Gross, who runs Pimco’s Total Return Fund from Newport Beach, tells me …

• “Short rates — Fed Funds — on hold for all of 2010″
• “Intermediate and long rates dependent on what happens in March. If the Fed stops buying $1.5 trillion of mortgages and Treasuries.”
• “If they do (stop) then the 10 year (now at 3.75%) could go to 4.0%. If they don’t stop, then 3.5%.
• “So not much of a range. Inflation will be coming down and that will help.”
• And, ominously, he ended: “But we have a helluva deficit to pay for.”

Earlier this week, Morningstar awarded Gross their “Fixed-Income Manager of the Decade” award stating …

• Pimco Total Return investors are $47 billion wealthier for the decade, highest among all fund managers. (Morningstar’s wealth creation figure is the aggregate return made on dollars invested in the fund in the decade.)
• “Gross has stayed ahead of the competition throughout the decade by making the right calls at the right times. For example, despite the mess that mortgages created in the market, bonds backed by mortgages have been one of the fund’s largest sources of excess return.”
• “Gross is one of the best investors of our era. Many investors eagerly await the insights in his monthly investment outlook. And in 2009, investors poured more than $50 billion into Pimco Total Return.”

With the winter season coming to an end, so goes the unclear future of the housing market. The most unpredictable moment of the last 3 years is nearing an end. During the third quarter of 2009, analysts were unsure which way the real estate market would turn. It had been experiencing unprecedented strength the entire year but pessimists had a valid point when they attributed it all to a seasonal strength. Going into the winter season, potential homebuyer’s were nervous that the strength would die and the price spiral would begin once again. Due to low interest rates and price cuts, the winter season has remained strong and activity is not far off from its’  September highs.

While not there yet, we are just around the corner from the next seasonal trend, which is strength and activity. The spring and summer will once again bring about more activity, and further stabilize the housing bottom. Interest rates will continue to support the housing market through 2010.