One in five homes put on the market in Santa Clara County recently is a "short-sale" attempt, in which strapped homeowners try to sell for less than they owe their lenders...

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Discussions bubble about whether the current real estate woes in many parts of the country -- slow sales, rising foreclosures, collapses of mortgage firms -- could push the U.S. business climate into a deep economic quagmire. What do you think the chances are that the national economy falls into a true recession in the coming year? Very high High Low Very low

Discussions bubble about whether the current real estate woes in many parts of the country -- slow sales, rising foreclosures, collapses of mortgage firms -- could push the U.S. business climate into a deep economic quagmire. What do you think the chances are that the national economy falls into a true recession in the coming year? Very high High Low Very low

Discussions bubble about whether the current real estate woes in many parts of the country -- slow sales, rising foreclosures, collapses of mortgage firms -- could push the U.S. business climate into a deep economic quagmire. What do you think the chances are that the national economy falls into a true recession in the coming year? Very high High Low Very low

Paul McCulley is chief Fed watcher for the Pimco bond-trading powerhouse in Newport Beach and the co-author of a new book ?Your Financial Edge: How to Take the Curves in Shifting Financial Markets and Keep Your Portfolio on Track? with retired New York Times reporter Jonathan Fuerbringer. We figured after a crazy week in financial markets, we?d check in with Paul on his thoughts on real estate, his book, and, of course, what he thinks the Fed will do next.Us: Your book warns the investing public to expect far lower profits on their investments in the future vs. what they've seen in years past. Is the current real estate malaise a good example of what you're talking about? Why?Paul: Key thing here is the starting point - valuation. You can only get extraordinary gains from a starting point of cheap valuation, like stocks with single digit P/E ratios 25 years ago or Treasurys with double-digit yields. Same thing with housing. Price-to-rent ratios have soared in recent years; that can't be repeated. Indeed, you should see compression in that ratio. Us: Outside of a roof over their head, how do you think people should approach real estate going forward? Any specific thoughts about O.C. housing?

Paul McCulley is chief Fed watcher for the Pimco bond-trading powerhouse in Newport Beach and the co-author of a new book ?Your Financial Edge: How to Take the Curves in Shifting Financial Markets and Keep Your Portfolio on Track? with retired New York Times reporter Jonathan Fuerbringer. We figured after a crazy week in financial markets, we?d check in with Paul on his thoughts on real estate, his book, and, of course, what he thinks the Fed will do next.