June 26 (LPAC) -- Bill Gross, manager of the world's largest bond fund, PIMCO, wrote Tuesday on the company's website, {Looking for Contagion in All the Wrong Places}, that the subprime mortgage crisis will not be isolated. "If subprime total losses hit 10% then even some single-A tranches face the grim reaper. AAAs? Folks the point is that there are hundreds of billions of dollars of this toxic waste and whether or not they're in CDOs or Bear Stearns hedge funds matters only to the extent of the {timing} of the unwind. To death and taxes you can add to your list of inevitabilities: the subprime crisis is not an isolated event and it won't be contained by a few days of headlines in The New York Times. And it will not remain confined to a neat little Petri dish in some mad financial derivative scientist's laboratory. Ultimately through capital market arbitrage it will affect risk spreads in markets completely divorced from U.S. housing. What has the Brazilian Real to do with U.S. subprimes? Nothing except many of the same bets are held in hedge funds that by prudence or necessity will reduce their risk budgets to stay afloat. And the U.S. economy? Of course it will be affected. Consumption will be reduced, to say nothing of new home construction over the next 12-18 months."

Gross concluded: "Contagion? Maybe, but you won't be finding it at 99.9% pure Bear Stearns. Look for it instead, in the subprimely financed homes of Las Vegas, Rockford, Illinois, and Miami, Florida. This problem, aided and abetted by Wall Street, ultimately resides in America's heartland, with millions and millions of overpriced homes and asset-backed collateral with a different address- Main Street."