A mortgage “vulture fund” at TCW

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Good morning. Barron’s spent some time with a very smart LA bond investor, and reports that Jeffrey Gundlach of TCW Group has put together a $1.6 billion ‘vulture fund’ to buy distressed mortgage-backed securities on the cheap.

That would be the one piece of slightly bullish news in the Barron’s piece -- that Gundlach and TCW believe there are some bargains out there. Otherwise the interview with Gundlach comes from the dark side of the moon: ‘He sees U.S. home prices dropping an average of 12% to 15% annually from the highs achieved last year and not reaching their eventual trough until late 2008, at the earliest. And they may not start recovering until 2010 or 2011, inflicting, in the meantime, real damage on the economy.’

More: ‘...the pain may be especially bad in what Gundlach calls ‘the bubble markets’ of California, Florida, Nevada and Arizona and hard-hit Rust Belt areas in Michigan, Ohio and Indiana. Housing prices in those locales will likely fall 30% to 40%, he maintains.

Gundlach was named Morningstar Fixed Income Manager of the Year for 2006.

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