Sunday, October 16, 2011

The Bet on Doom

There was a time that Bill Gross believed in the 2% growth, 2% inflation plan for the developed world (he called it the "New Normal") and bet that way.

Remember how much attention PIMCO's Bill Gross got when he went short Treasuries earlier this year? 
He made a big call about how the end of QE would lead to a demand vacuum for Treasuries, causing rates to soar.
Now? Not so much...

The simple fact is that the portfolio at midyear was positioned for what we call a “New Normal” developed world economy – 2% real growth and 2% inflation. When growth estimates quickly changed it was obvious that I had misjudged the fly ball: E-CF or for non- baseball aficionados – error centerfield.
Now? He's going looooooooooooooong on treasuries because he's sure the economy is totally doomed.

So where do we go from here? Our internal growth forecast for developed economies is now 0% over the coming several quarters and the portfolio more accurately reflects this posture. Yet even so, can the golden glove regain its magic? Well, as I’ve indicated, we’re showing up early every day at the ballpark – in this case for a little fielding practice. And perhaps importantly, we recognize the majesty of the stadium we’re playing in. This is big league ball, where your ticketholders come to the park expecting not a circus Willie Mays catch but more wins than losses and a yearend performance that places your bond assets near the top of the standings.

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