The New Neutral is the name for our near-term economic future according to William Gross, founder and Chief Investment Officer of PIMCO, one of the largest of investment funds.
He and his investment team pride themselves on discerning the big trends and avoiding herd mentality when plotting the course of PIMCO fund investments.
After prematurely calling the end of the era of interest rate declines and predicting a more rapid rebound in interest rates, Gross is now predicting a new trend, “The New Neutral”. In this environment, he suggests the US economy is in for a period of market stability with moderate to low returns (broadly, bonds returning 3-4% and stocks 4-5%) with relatively lower volatility.
Of course, he points out that the US economy is subject to impacts from our major trading partners and specifically calls out the risk of Japan’s current economic policy.
While his reputation as an economic wizard has been tarnished, his predictions, in my view, still merit consideration.
In 2014, the tide may be turning again as demographics, fear of another Lehman, or just income-starved insurance companies and similarly structured liability-influenced institutions, reach for anything they can get. The era of income may be, at the margin, replacing the era of capital gains, despite artificially low current yields.
I admit, my posts predicting a slow growth environment were also premature. Click here.