Pimco’s Bill Gross and Mohamed El-Erian have been preaching about the new normal for more than a year and a half. On July 1st 2009, Bill Gross said low asset returns for the coming years are the “new normal”. Taking a shot at investors, he added, ”The new normal will not be investor-friendly unless your forecasting dial is turned to “Pollyanna” or your intelligence quotient is significantly less than 100.”
Eighteen months after Bill Gross’ super genius prediction, the S&P 500 ETF SPY went up by 43.7%. Long term bond ETF (TLT) returned 3%. Medium term treasury bonds, iShares Barclays 7-10 year Treasury (IEF), returned 9.6%. It’s clear that borderline mentally retarded Pollyanna’s made the most in the stock market while genius investors were expecting for the arrival of the “new normal”.
In his January 2011 investment outlook, Bill Gross implies that Europe is in doing the right thing while America is heading in the wrong direction:
“Unlike Euroland or the United Kingdom, which appear to have gone on an extreme fiscal diet, the American answer to a bulging waistline is always “mañana.” Debt commission recommendations are tossed in the trashcan, tea party election rhetoric eventually focuses on miniscule and merely symbolic earmarks, and both Democrats and Republicans congratulate each other on their ability to reach a bipartisan agreement for the good of the nation. Munch! Munch! Off with our heads!”
Gross then proceeds to predict that the US dollar will lose value, dollar denominated assets will degrade (whatever that means), and we will experience higher import inflation. Gross recommends stock investors invest in Canada, Brazil, and Mexico instead of United States.
Last week world’s largest currency hedge fund predicted the US dollar to gain 25% against the euro. One of the most successful equity hedge fund managers of 2010, Daniel Loeb, predicts both euro and US dollar to depreciate. That’s why his largest position in his portfolio is gold.