For what it’s worth Pimco’s CEO, Mohamed El-Erian, has a fairly bearish view of the world’s economy over the medium term — three to five years. He sees higher unemployment, slow global growth and persistent government intervention as the “new normal.”

“Relative to where it is coming from, the financial system will be de-levered, de-globalized, and re-regulated,” said El-Erian, who helps oversee more than $800 billion in assets.

“Global growth will be lower and unemployment higher, notwithstanding the continued rotation of dynamism away from industrial countries and toward emerging economies.”

Industrial countries are veering policy interest rates close to zero as many face or are dealing with negative growth rates, as the credit and banking crisis has sapped global growth. In fact, the International Monetary Fund estimates that banks around the globe will need to write down about $2.8 trillion. So far, about one-third of that has been written off.

Against that backdrop, El-Erian said Pimco will focus on income-generating instruments such as high-quality investment-grade bonds, municipals and short-maturing government bonds from around the world which will outperform “pure equity” securities, and international investments.

Income-generating instruments will dominate pure equity plays even though they will trade with premiums because they will reflect “a permanently higher threat of subordination” amid an environment of government intervention, he said.

“Price formation in many markets will be influenced by the legacy and, in some cases, continuation of direct government involvement,” El-Erian said.

Kind of sounds like the world is turning into France, doesn’t it.

more: here