The Latest From Bill Gross

Maybe it’s the dog days of August but Bill Gross’s latest missive seems a bit repetitive. Entertaining as always but more of the same talk about the “new normal”

Gross makes the point again that deleveraging, deglobalization and reregulation are the three horsemen of the apocalypse that will lead us to decades of slow growth and shifting centers of economic influence. The American consumer is finished and thus the world cannot grow at previous rates; government’s heavy hand will retard growth; global economic leadership may see the torch passed to the Chinese; and US housing and unemployment will remain as permanent anchors to recovery. All conspire to lead us into a world where in Gross’s words, “…economies grow very slowly instead of growing like weeds…”

All of this naturally leads to his view of an appropriate investment strategy which, of course, is mostly talking his book:

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.

I’m probably being a bit harsh for I do enjoy his newsletters and I don’t think that he is that far off the mark. Could he be wrong? Of course he could. Economies move in mysterious ways and there is a great deal of momentum that can come from the unlikeliest of places. If the world bounced back stronger than expected over the next several years it shouldn’t be considered that much of a surprise. I don’t expect that it will happen but I won’t be surprised if it does occur.

For that reason, I think it’s wise to heed Gross but not terribly prudent to put all of your eggs in his basket.

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