Journalists often race like lemmings to the sea, all repeating the same bad news. Take the “New Normal!” It’s not a new song. But you’d think it was a smash hit! Bill Gross, super-boss of the $950 billion Pimco fund managers is running around the country like “Boss” Springsteen pushing an upcoming tour with new songs. Bill’s PR agents have him everywhere except on Letterman and SNL. Here’s Jessica Marquez’s version of Bill’s misleading message in InvestmentNews, the financial advisers weekly:
Gross: Curb expectations. Pimco co-CIO still thinks ‘new normal’ is 5%-6% returns. The market may have rallied over the past several weeks, but Bill Gross is sticking to his opinion that investors will never again see the returns and profits of a few years ago. [Never?] Speaking during InvestmentNews‘ ETF Insights online conference last Wednesday, the managing director and co-chief investment officer at Pacific Investment Management Co. LLC told attendees he still believes that the U.S. economy is in the “new normal.” “It’s a world where growth slows down and where investment returns are half of what we have grown used to over the past 10 to 25 years.” Mr. Gross cited three major reasons that advisers should lower their clients’ expectations, as well as their own:
• The United States is deleveraging as a result of years of using extreme leverage. ‘That means that banks don’t loan money like they used to, and it basically means that the small investor doesn’t take risk as much as they had used to,’ he said.
• The government’s push toward ‘re-regulation’ will keep profits and growth in check. ‘It probably slows the economy down,’ Mr. Gross said. ‘To us, regulation and re-regulation are not an investor’s friend.’
• In a new climate of ‘deglobalization,’ other countries are focusing more on their internal growth than on expanding trade.
As a result of these factors, economic growth will be half of what it was — averaging around 4% annually, he said. Profits will remain around 4% to 5% instead of the previous levels of 8% to 9%, Mr. Gross said. ‘This isn’t a forecast that says, Bear market — run for the hills,’ he said. ‘It’s a world where if we have less growth, less leverage and the inability to siphon funds from Main Street to Wall Street, you’d better expect rates of return in the general vicinity of 5% to 6% total.’
Journalists all over America are taking the bait, like disk jockeys playing and replaying telephone requests for new releases from “The Boss.” This time it’s Boss Gross’ ”New Normal” single. And the song may bomb.
Yes, the Buffett’n'Bogle duo sang the same “New Normal” song back in 2002
Sorry folks, but you’ve heard this song before! It’s an oldie, and not so goodie. We fell for it in June 2002. Investors were real scared. The Dow still hadn’t hit bottom, didn’t till October 8, 2002 at 7286. Then started a five-year bull run. Here’s what I wrote back in mid-2002, in “Tough Times Ahead for Retirees: Predicted 7% Returns Could Spell Disaster:”
Wake up, America. Stop kidding yourself. If you’re one of the vast majority of investors who still expect double-digit returns, you’re in denial. The truth is, 7% to 8% is the best you can hope for. The go-go years are gone — and they’re unlikely to return in our lifetime. The technology revolution is just another chapter in the history of the world’s greatest bubbles. Those wonderful 20%+ returns are gone, forever. Think otherwise and you’re trapped in a fantasy world — setting yourself up for a painful retirement.
America is getting back to normal, but what’s ‘normal?’ The new normal [yes, I wrote "new normal"] set in last year when both Warren Buffett and John Bogle began warning investors that we’d better expect single-digit returns for the next decade, in the low 7% to 8% range.
Bottom line: Of course things are different today, just as they were different in June 2002 compared to 2000. But there’s no “New Normal” except the ones being hummed by and for Gross, Buffett and Bogle. And their agendas are probably not be in your best interests. I’m not telling you to run out and buy. Just be skeptical and trust that little warning bell in your head. Remember Buffett’s “Two Biggest Rules of Investing. Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”