Bill Gross Talks About the 'New Normal'

Bill Gross, co-founder and co-CIO of PIMCO, is to my mind one of the shrewdest money men around. His monthly newsletter, this month entitled “On the “Course” to a New Normal”, therefore always makes for thought-provoking reading.

He concludes the newsletter as follows:

The investment implications of this New Normal evolution cannot easily be modeled econometrically, quantitatively, or statistically. The applicable word in New Normal is, of course, “new.” The successful investor during this transition will be one with common sense and importantly the powers of intuition, observation, and the willingness to accept uncertain outcomes. As of now, Pimco observes that the highest probabilities favor the following strategic conclusions:

1. Global policy rates will remain low for extended periods of time.

2. The extent and duration of quantitative easing, term financing and fiscal stimulation efforts are keys to future investment returns across a multitude of asset categories, both domestically and globally.

3. Investors should continue to anticipate and, if necessary, shake hands with government policies, utilizing leverage and/or guarantees to their benefit.

4. Asia and Asian-connected economies (Australia, Brazil) will dominate future global growth.

5. The dollar is vulnerable on a long-term basis.

Click here for the full article.

Source: Bill Gross, PIMCO - Investment Outlook, September 2009.

Comments

[derryl:]

Bill's 5 points may not be exactly "self-apparent", but I certainly agree with each of them.

I would add Canada to the list of Asian connected economies. Cdn government finance officials and big bankers just returned from a sales trip to China advocating Canada's banking model and increased mutual trade. Another Cdn public-private trade contingent also recently returned from China advocating the same. Prime Minister Harper has stated that PetroChina's $1.9 billion stake in Athabasca OilSands is a "commercial" investment and will not be blocked on national security grounds. The city of Vancouver has a very large Chinese population, especially people from Hong Kong who bought property in Vancouver as a hedge before control of Hong Kong reverted to China. Current 2 way direct investment between China and Canada is a very small percentage of each country's DFI but it looks like that is about to get a lot bigger as China needs what Canada has--energy and commodities of all kinds.

Sep 06 09:34 AM

[dipps:]

Inflationary pressures sit in the background of this "new normal" and may advance quickly with commodities like gold spearheading the way on a weak dollar. Policy will eventually act on this and subdue the ranks but for now the conclusions of Mr. Gross appear on the money.

Sep 06 03:07 PM

[bbowen7:]

If there is ever a meaningful program to have private money managers buy discounted mortgage-backed securities (the intractable "toxic assets") Bill Gross is the guy to bet on. Top on bonds; savvy of the political world.

That said, I do not understand why he isn't moving on his observations about the decline of the dollar and the implications of trillion dollar deficits.

Sep 06 03:09 PM

[LKofEnglish:]

is that a "unless of course i'm wrong again in which i must remind my readers since we're dealing with something new what i really mean now is what's going on is one surprise after another and we don't really have any idea either"? PIMCO's stuck its neck out with HUGE spending binge WITH quantitative easing. treasuries are ALL over place. never had anything like it in our post-war history. nothing at all NEW about it, though. This is the start of something called BAD.

Sep 07 12:37 AM

[j-dub:]

So what he`s REALLY saying is that for the U.S., the NEW NORMAL is:

10% unemployment
socialistic tendencies
depressionary states
higher taxes
oppressive government
social unrest
decending to mediocrity

NO THANKS

Sep 07 12:43 AM

[Gary A:]

How do you guys know that Gross isn't positioning himself for a massive crash? He is pumping like Bernanke, green shoots and all. But face it, the punch bowl will have to be removed as Americans will not be able to afford the rising commodity prices.

If the American consumer does not recover, and he cannot if the dollar tanks, then there will be no world recovery. I question Bill Gross's motives here.

Sep 08 09:37 PM

[Gary A:]

How do you guys know that Gross isn't positioning himself for a massive crash? He is pumping like Bernanke, green shoots and all. But face it, the punch bowl will have to be removed as Americans will not be able to afford the rising commodity prices.

If the American consumer does not recover, and he cannot if the dollar tanks, then there will be no world recovery. I question Bill Gross's motives here.

Sep 08 09:37 PM