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Bubble Watch: Investor Bill Gross calls California’s economy ‘vulnerable’

“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: Legendary bond investor Bill Gross of Newport Beach has retired. One of his career highlights as Pimco’s investment chief was having his crew (and his clients money) be early witnesses to last decade’s bubble, avoiding much of the investment pain that followed. So we had to ask Bill, “Is there another bubble coming to California?”

His thoughts: From the minute Gross arrived in California roughly a half-century ago, he’s been a huge fan. That admiration doesn’t mean Gross is blind to economic blemishes.

He’s got no problem suggesting the most obvious advantage – the climate.

“There will always be sunshine and NO BUGS,” he says, emphasizing the comparative lack of pests vs. other warm locales.

And the state’s history of creating technological giants is a huge plus, derived in good part from its well-established attraction to big dreamers and a decided culture accepting of against-the-grain thinking.

“When I arrived from Ohio, there was unlimited hope,” he says. “And a lot of that has carried over to this day.”

But entrepreneurial wizardry is by no means a guaranteed victory looking forward, especially with competitors nationally and globally seeking slices of California’s tech success.

“But today that can be generated anywhere,” Gross notes. “You have to maintain your edge.”

Gross does not think the state’s high cost of living – especially lofty tax burdens – will scare off too many key players. But the shaky financial ground on which the state government operates – a condition true for many other states and the federal government – is a long-term concern.

He was pleased to see the new governor, Gavin Newsom, slash plans for the pricey intra-state bullet train. But other cost-cutting actions will be needed.

“Be careful,” was Gross’ advice for him.

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A big worry for California that Gross foresees are issues the state has little control over such as financial market shifts and political whims.

Take high-cost housing. It means many California property owners — from individuals homeowners to institutional investors — are highly leveraged. So keeping interest rates relatively low is critical to the state economy.

And the state’s job market is desperate for workers – both highly skilled staff and lower-rung employees. Anti-immigration politics will certainly limit California employers ability to be adequately staffed in an aging world.

“Where are we going to get more people?” he asks.

How Bubbly? So all things considered, when I asked if California faces a bubble risk, Gross was classically blunt: “It’s vulnerable.”

Source: Orange County Register

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