Monday, October 03, 2011

Quote of the Day

World's biggest bond manager Bill Gross:

"there are no double-digit investment returns anywhere in sight for owners of financial assets. Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years."

Just because he said this doesn't make it right, well thought out, reasonable or well founded.


  1. Why is everyone so quick to proclaim a new normal, only to be similarly shocked by the return of the old normal and the realization that the new normal was just an abberration?

  2. Ryan,

    In this case, the downturn is considered the aberration by the masses. Which is right? Which one is based on facts and analysis?

    Remember the housing bubble? The people with the data and analysis were right. The people with the pom-poms suckered a nation, into a new normal.

  3. The S&P 500 is where it was 13 1/2 years ago.

    Quick to proclaim a new normal? Seems like it took a long time to me.

    The better question is why are some people still so sure that the boom years are coming back any minute.

  4. Mike,

    The downturn was delayed, and worsened, by the housing bubble. It was not the singular cause of the system problem. I think that is understood.

    Gross's point about structural changes is key. We ought not be betting the city, county, state, and fed government farms on wishful thinking about the future economics of the USA until we address the structural issues. If go with the wishful thinking route, we risk pouring fuel on the national wealth bonfire.

    Ryan seems to imply that this is just part of a business cycle. I think even big Ben isn't even trying to claim that anymore.

  5. New normal is that we are not an island but tied to the global economy, therefore, as we go they go and as they go we go. Bit difficult to solve global economic problems without a playbook. We just have to keep punting. One thing I know is, don't spend more than you make, whether you are an individual, family, tribe, or country. That is where the good old USA is failing its citizens. Cease and desist wars and foreign aid, pull back our capital and ride whatever is left of our global goodwill. That isn't going to happen because the fear mongering defense industry and the corporate carrion fowl don't want a change in the status quo.

  6. Yep, I've already forgotten the housing bubble... What was that whole thing about???

    My point was that analysts, pundits, and everyone else with an opinion are often too quick to proclaim a fundamental change, when, in reality, the situation is simply a result of the inputs, not an entirely new model of economics.

    I distinctly remember hearing people suggest that we were experiencing a new period of of prosperity where the old economic rules no longer applied. It was a new normal!

    I laugh now when I hear we are again in a new normal. We are simply experiencing the direct economic effects of the housing bubble and extreme over-leveraging by just about everyone.

    KC, this IS simply a part of the business cycle, though it just happens to be that the effects are more profound. The economic shock that sent the economy into the tank didn't fundamentally change the rules, and it should be no surprise that we are struggling to restart growth. It is going to take a while to regain momentum after such a large shock, but it will come, though probably not tomorrow.

  7. Ryan and Mike,

    I think we are all making the same point about seeing a difference between the cheerleaders and the evidence based comments.


    I hope you are right that this is just part of the standard cycle because many of the tools being used to correct it are the ones that are applicable to a normal business cycle downturn.


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