When the dust settles from the landslide of bankruptcies and mergers on Wall Street, we will still be left with the fundamental problem that created this mess – the housing bubble.  Only true stabilization in housing prices can bring long-term relief to the financial sector.  As we have said in the past, current housing prices reflect the gross imbalance between supply and demand, and it appears we are far from reaching equilibrium.

In a conference call with investors on September 17, Jeffrey Gundlach, Chief Investment Officer of The TCW Group and portfolio manager of the TCW Total Return Bond Fund (TGLMX), provided some insightful observations on the continued ill health of the housing sector.

Gundlach agrees the essential problem is an oversupply of housing, which remains uncorrected by market dynamics.  He provided the following data:

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