PIMCO’s Gross Sees A Bleak Future

This isn’t really news but Bill Gross set forth his expectations for the economy over the medium term. It’s pretty much the same pitch we’ve heard from PIMCO over the last month or so but still worth revisiting.

From Fox Business:

Bill Gross, co-chief investment officer of bond mutual-fund giant Pimco, on Thursday offered investors a sobering market outlook in which he sees lower returns, decreased U.S. growth and the loss of the dollar’s status as the world’s reserve currency.

In a speech delivered to advisers and investment managers at the Morningstar Investment Conference, Gross outlined what Pimco colleague Mohamed El-Erian has termed the “New Normal.”

In a world of more regulation, private-sector deleveraging and less consumption, “it’s hard for [Pimco] to imagine” the Dow Jones Industrial Average ($INDU) climbing back to 14,000 or home prices returning to 2006 levels, Gross said.

“Growth will be stunted,” he said. “It will be a different type of world and we have to get used to that.”

The U.S. economy will grow at between 1% and 2% a year rather than 2% to 3% a year for the next three to five years at least, Gross said. “That will make a significant difference for corporate profit growth,” he said.

Moreover, unemployment will hover around 7% to 8% rather than the recently typical 4% to 5%, he added, and the higher rate would be around “for a long time to come.”

Gross added that inflation would also start to accelerate in about three to five years’ time.

Gross also said that the dollar will lose its reserve status and that the government will focus more on middle class wage earners at the expense of business. He bases the latter statement on the preferences he detects in the Obama administration’s approach to the Chrysler and GM restructurings.

It’s a pretty stark assessment when you stop and think about it. If he’s right about growth as low as one or two percent, then I wonder exactly what currency he sees replacing the dollar. So long as the U.S. grows that slowly, the rest of the world, at least in the medium term, is not going to go racing away. Therefore, what economy is all of a sudden going to look to be such a great place to hold liquid funds? I buy into the argument that the dollar fades but not that it is supplanted.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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