Gross: QE and financial repression have failed

While critical of the Fed’s policies, he does come to the defence of its chairman Ben Bernanke saying he has received little help from the political elite in terms of cooperative fiscal stimulation.

‘They have all focused on re-electing themselves as opposed to constructively plotting a way forward.’

‘If monetary policy has shown its impotent limits, can we now trust Washington to constructively reverse a downward slide in our net national savings rate?’

‘I suspect not. I doubt if either Obama, Romney, or many of their economic advisors even know what the definition is, let alone how to reverse it.’

How to prepare your portfolio

If real economic growth is stunted in the US and globally, said Gross, then 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.

‘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 US 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.’

‘If so, then Treasury yields should stay low,’ he said, adding that money market funds will also continue to deliver historically low interest yields.

‘The “cult” of equity – or better yet the cult of “total return” – for both bonds and stocks – is over, if that definition presumes a resumption of historical patterns anywhere close to double digits.’

‘The era of financial repression continues.’

The full Bill Gross Investment Outlook can be read here.