with liberty and justice for the 1(%).
Gross then asks the genie for a read on the latest round of quantitative easing, and how well it’s working. Unsurprisingly, given Gross’ oft-stated view of such things, it’s not working well.
“Aside from a little squiggle back close to 0% over the last year or so, there is no evidence that investment is being incented by quantitative easing,” Gross (genie?) writes. “All of the money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production.”
So what’s to be done?
Investors should recognize that asset and currency prices ultimately rest on the ability of a real economy to grow, he notes. If growth cannot be boosted by monetary policy, and fiscal policy is “in the hands of a plutocracy more concerned about immediate profits as opposed to long-term vitality, then no Genie or Flavor Flav with a magic clock can make a difference.”
“Portfolio strategies should acknowledge bite-sized future returns and the growing risk that the negative consequences of misguided monetary and fiscal policy might lead to disruptive financial markets at some future point,” he concludes. “The approaching fiscal cliff might be the first of a series of future disruptions. Although PIMCO expects a middle-ground fiscal compromise from Washington, when that is combined with the fading influence of QE monetary policies, it leads only temporarily to 2% real growth in the U.S. at best —growth that is clearly not “Old Normal.” We are in a “New Normal” world where the negative effects of private sector deleveraging are only being weakly addressed by monetary and fiscal authorities.”