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PIMCO's Bill Gross Predicts a "New Normal" (aka Dollar Demise). Read this.

Google PIMCO and Bill Gross.

Bill Gross of PIMCO gave a sobering assessment of market prospects during his luncheon keynote address at the 2009 Morningstar Investment Conference on Thursday. Gross effectively discredited the idea that this brutal bear market will give way to a new decade of prosperity for risky assets, a notion that some notable speakers this year have cautiously entertained. Instead, Gross foresees a new investing landscape in which we will have to get used to a permanently downgraded economy and much lower returns on all manner of risk-taking.

Gross is a founder and co-chief investment officer of PIMCO, and his stellar, multi-decade record at the $150 billion PIMCO Total Return (PTTRX

Sponsored by:
) fund makes him one of the biggest rainmakers among all money managers in history. His ideas carry a lot of weight indeed, which doesn't make it any easier for most people wedded to the notion of a secular bull market interrupted by periodic setbacks (whom Gross called "children of the bull market") to digest this sketch of a new, lesser-return normal.

In a conversational speech, Gross outlined how we got here and what makes this bear market different. He pointed out the rise of active central banking since the end of the gold standard (as administered within the Bretton Woods system) as the key impetus behind the golden age of financial capitalism and the "great moderation" of macroeconomic risk that we enjoyed for more than two decades. We got used to the comforts of that era to our own peril, and it directly or indirectly led to massive global imbalances such as the indebtedness of the U.S. consumer and the Western financial system on one side and the bulging foreign exchange coffers of China on the other. Now, as we go on a long, hard journey to repair our collective balance sheets, Gross sees no quick return to the days of low unemployment, low inflation, and solid economic growth.

Gross suggested that investors would need to question many long-held beliefs as they adjust to this new normal. Among them is the idea that risky assets such as stocks are always better for the long run. In the subdued economic climate ahead, risk-taking is simply not going to be as rewarding, so investors may want to switch down to a more sedate asset allocation mix with more bonds and stable blue chip stocks.

Another key piece of advice from Gross is to raise investments outside the U.S because the dollar is likely to lose its status as the world's reserve currency amid massive levels of government debt.

Finally, Gross predicts a saner, more stewardship-minded money management industry characterized by greater aversion to loss and lower fees.

At least that last one doesn't sound like such a bad outcome after all.

Ron Paul called this crap years ago: The Demise of the Dollar.


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More like "economic demise"

We have fallen so far, so fast. What the heck happened?

Let's go back to 1991, we were deep in recession, a Bush was in the White House and real estate was in the toilet (gee that sounds familiar.)

But then we created the Internet, a new way to to do business that forever changed our lives. That one innovation pulled us out of the crapper and got us going again.

Unless we can come up with the next "Internet", and real fast, then Bill Gross is right on the money.

Jim Sinclair's 12-point formula as he presented it in 2006

This is freaking amazing!

Jim Sinclair's Formula:

1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.

2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.

3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.

4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.

5. Lower profits leads to lower Federal Tax revenues.

6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.

7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.

8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).

9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.

10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.

11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.

12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.

At the end of the list he added the following two paragraphs:

Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.

What do you think? Do you see a progression that more or less describes much of what we've experienced thus far? If so, which step do you think we're on now? He's sometimes a bit cryptic, so take a few minutes with it, and thanks again for sharing your thoughts. :)


Thomas Jefferson once said, "The natural progress of things is for liberty to yield and government to gain ground."

Well, I guess he called that one.