Bill Gross, co-founder and co-CIO of PIMCO, is to my mind one of the shrewdest money men around. His monthly newsletter, this month entitled “Staying Rich in the New Normal”, therefore always makes for thought-provoking reading.

He concludes the newsletter as follows:

“The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on the former or the latter. It is probable that trillion-dollar deficits are here to stay because any recovery is likely to reflect ‘new normal’ GDP growth rates of 1%-2% not 3%+ as we used to have.

“Staying rich in this future world will require strategies that reflect this altered vision of global economic growth and delevered financial markets. Bond investors should therefore confine maturities to the front end of yield curves where continuing low yields and downside price protection are more probable. Holders of dollars should diversify their own baskets before central banks and sovereign wealth funds ultimately do the same.

“All investors should expect considerably lower rates of return than what they grew accustomed to only a few years ago. Staying rich in the ‘new normal’ may … require investors to resemble … Will Rogers, who opined in the early 30s that he wasn’t as much concerned about the return on his money as the return of his money.”

Click here for the full article.

Source: Bill Gross, PIMCO - Investment Outlook, June 2009.

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