How have events since March affected the debate about the role of housing in the economy and markets?
McCulley: The themes were the same, but some of the questions were quite different. In March, the U.S housing crisis was becoming critical, but subprime mortgage problems were more or less contained to that sector. Before August, data showed the U.S. economy was doing pretty well aside from the housing recession. Since the rest of the U.S. economy, including the U.S. consumer, had decoupled from the housing sector problems, it was not a big surprise that global growth was also holding up well. But there has been much water under the bridge since our last Cyclical Forum in March! A key part of our March outlook was that the subprime crisis would spread, in contrast to the markets’ consensus view that it would remain contained. Today, the spread of subprime contagion is a reality. The debate is no longer “if” subprime will infect the rest of the economy, but how infectious it will be in the U.S. and globally. Q: Considering the threat of contagion from the subprime sector, what did PIMCO
