Can we get the old normal back?
PIMCO’s Bill Gross issued his January 2012 Investment Outlook, focusing on the “New Normal” economy. For 2012, in the face of a de-levering zero-bound interest rate world, Gross says investors must lower return expectations. 2-5% for stocks, bonds and commodities are expected long-term returns for global financial markets that have been pushed to the zero bound, a world where substantial real price appreciation is getting close to mathematically improbable.
Gross’s investment outlook for 2012: 1) Bonds – durations and average maturities should be at their maximum permissible limits as short-term yields return next to nothing. Longer term securities should focus on inflation protected options. Sovereign bonds should be in the U.S as investors gravitate to the “cleanest dirty shirt” balance sheets; 2) Stocks – favor higher yielding companies with relatively stable cash flows. Electric utilities, big pharmaceuticals and multi-nationals are suggested; and 3) Commodities – Gross believes they could go either way. Gold at $1,550/oz seems pricey to him, but could go up if quantitative easing persists.
Separately, Bloomberg reported that PIMCO’s Total Return Fund lost $5 billion in client redemptions last year as returns trailed rivals. Gross took a negative stance on U.S. Treasuries mid-year, which weighed on returns. The fund returned 4.23% in 2011, trailing 69% of peers according to Bloomberg data.
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