PIMCO’s concept of “new normal,” predicated on the belief that global growth and investment returns will be far lower moving forward than in the recent past, continues to generate controversy. Some analysts are now proclaiming Gross right, and pointing to Fed Chairman Ben Bernanke’s comments Tuesday as proof.
PIMCO, based in Newport Beach, Calif., first used the phrase in 2009, forecasting a period of lower-than-average economic growth for the foreseeable future. Analysts and economists soon began using the term as high unemployment in the United States and the sovereign debt crisis in Europe became more apparent. Writing in the Financial Times in July of that year, PIMCO CEO Mohamed El-Erian posed the following question:
“What happens if unemployment stays above 10% for an extended period?”
As El-Erian noted, “disruptions in our economy until now have been mainly influenced by large-scale anomalies in the financial system. But double-digit unemployment is a large and very angry black swan, and the reactionary policy implications (protectionism, another round of stimulus) aren’t promising.”
“Think of this [unemployment] as yet another illustration of the fact that the U.S. economy is on a bumpy journey to a new normal,” he wrote. “The longer this reality is denied, the greater will be the cost to society of restoring economic stability.”
Other high-profile money managers and government officials were quick to disagree. Legendary Legg Mason manager Bill Miller said it wasn’t to be believed, and Ken Fisher (left) explicitly called the concept “idiotic” at Forbes’ Global CEO Conference in Sydney, Australia, last September.