Eight Burning Questions for the Mutual Fund World
A preview of Morningstar's Annual Investment Conference.
It's time once more for the annual Morningstar Investment Conference, and there are quite a few burning issues on which we hope to shed light. I'll let you know what we learned next week.
1. How Bad Is the Subprime Mess, and What Will It Do to the Economy?
The housing market is in a slump that most people say will get much worse before it gets better. Less clear, though, is where the subprime-lending mess will lead. Some, including PIMCO's Bill Gross, say that the Fed will have to ease to reduce pressure on the subprime market. Gross argues that the real threat is not in hedge funds blowing up, but that huge numbers of mortgages will reset their interest rates at a much higher rate, thus spurring delinquencies. "A recent research piece by Bank of America estimates that approximately $500 billion of adjustable rate mortgages are scheduled to reset skyward in 2007 by an average of over 200 basis points. 2008 holds even more surprises with nearly $700 billion ARMS subject to reset, nearly � of which are subprimes," he writes.
At our conference, the first to offer his take on the subprime world will be Jeffrey Gundlach of TCW. Gundlach won our Fixed-Income Manager of the Year award and should have some good insights to share. I expect to hear more on it from any number of stock-fund managers, but the final word will go to a trio of bond-fund managers who will wrap things up for us: Keith Anderson of BlackRock, Bob Rodriguez of FPA, and Steve Walsh of Western Asset Management. Including Gundlach, that means four of the very best minds in bond investing. Three of them work in Southern California and therefore have a great vantage point to the housing mess. I just hope we can get Bob Rodriguez to come out of his shell and tell us what he really thinks. Rodriguez was an early detractor of subprime lending, so I'm sure he'll not mince words in telling us how bad it really is and why.
Russel Kinnel has a position in the following securities mentioned above: SLADX. Find out about Morningstar’s editorial policies.