Outside the Box

Grim Reality

John Mauldin

April 9, 2007

As I glanced over at the TV in my office this morning, the latest news on the ticker wire was that American Home Mortgage Investment Corp. (AHM) is trading down over 16%. While the company is not of any particular importance to me, it spurred my thinking regarding how the housing market will affect the economy throughout the remainder of the year. And as I have written it is not really a matter of the housing market affecting the economy so much as it is a matter of tightening credit spreads that will do the damage.

This week's Outside the Box is written by PIMCO Managing Director Bill Gross where he discusses his views regarding the correlation between housing, credit spreads, the bond market and FED policy. In his article "Grim Reality," he goes on to point out that losses on loans, in and of themselves, are not the real monster lurking in the night for this economy, but rather it's the tightening of credit standards the could have a materially adverse effect. Bill does an excellent job explaining this as he so often does with his usual great style and wit.

I believe that you will find this Outside the Box to be a good read on what the implications behind a decline in the housing market really are.

John Mauldin, Editor
Outside the Box

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Grim Reality

By Bill Gross

Investment Outlook, April 2007

Life, it seems, has become one giant reality show - or is it vice versa? Which is truth and which is the illusion or have both simply morphed into a uni-consciousness that feeds off information from different computers - one the living kind with two arms and two legs, the other more stationary with a plasma and keyboard. My Apple screensaver for instance features a…

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