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Bill Gross, managing director of Pacific Investment Management Co. (or PIMCO), caused quite a stir in the blogosphere on Thursday with his monthly note to clients. In that note, Mr. Gross put a number on the estimated losses from the housing meltdown in the United States - and the number isn't pretty. In fact, it was high enough to scare investors off financial stocks again.

"PIMCO estimates a total of $5-trillion (U.S.) of mortgage loans are in risky asset categories and that nearly $1-trillion of cumulative losses will finally mark the gravestone of this housing bubble," he said.

And that means financial firms will be forced to either raise capital or sell assets and reduce lending - which, in turn, affects economic growth and creates a negative feedback loop. Needless to say, this forecast does not support the stunning rise in financial stocks over the past week. Many of the more troubled names surged from their lows as investors took relatively upbeat second-quarter results to mean that the worst was over for the sector.

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"If the PIMCO evaluation is right, U.S. banks have several hundred billion more dollars in losses coming," said Douglas McIntyre, writing on the 24/7 Wall Street blog. "Banks have rallied recently, but the PIMCO analysis says they have not seen their lows."

Perhaps as a testament to the influence that Mr. Gross has, financial stocks in the United States and Canada fell sharply on Thursday. Citigroup Inc. fell 7.8 per cent, JPMorgan Chase & Co. fell 4.3 per cent and Royal Bank of Canada fell 7.7 per cent.

Well, it could be even worse if other observers were taken as seriously as Mr. Gross. "Note also that this is far from the gloomiest view on record," said Yves Smith, writing on the Naked Capitalism blog in a particularly gloomy take on the subject.

"Well-respected analyst Frank Venerose now predicts $2-trillion in credit related losses; hedge fund Bridgewater, whose research is read by central banks, expects $1.6-trillion in markdowns; hedge fund manager John Paulson, who bet aggressively and successfully on the subprime debt debacle, anticipates $1.3-trillion."

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