Lessons From the Crisis--Bill Gross

The bond king presents PIMCO's view of the "new normal"

In introducing Bill Gross at the Morningstar Investment Conference on May 28, Don Phillips said "it's possible that Bill Gross has made more money for investors than any other professional money manager." Then Gross himself used Biblical themes to walk the 1,000 or so listeners through the preliminaries to the present markets and economic crisis, the current state of things, and the "revelations" of what is to come. The bond king said that PIMCO's view, called the "new normal," is that we are in a period marked by "slow growth, much higher NAIRU," (a jobless rate called the non-accelerating inflation rate of unemployment) of 7% to 8%, and accelerating inflation in the later stages of the next three to five years. Noting in passing that "globalization has been halted" and that "growth will return by the end of the year," Gross presented his "seven commandments" of what will happen next:

1) the policy portfolio (the standard 60% stocks/40% bonds) is dead;

2) "get used to your 301(k)," pointing out that labor will benefit in the new economy;

3) Invest by looking for stable income, which can come from fixed income, but also from holding stocks like Coca Cola;

4) "shake hands with the government," i.e., get used to having the government deeply involved in the economy and in specific companies;

5) "one day--perhaps sooner than we think--the dollar will lose its status as the reserve currency;

6) "invest in the BICs," excluding Russia;

7) Get used to investment bankers and investment management companies making less money.

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