Wednesday, July 01, 2009

Bill Gross's gloomy outlook for the economy

This story from Bloomberg news this morning caught my eye not only because of who is quoted here, Bill Gross, Co CEO of Pimco, but more importantly for what this well respected individual is saying. Of particular interest was not where he said to invest, but his prognosis for the economy going forward and if true will be extremely painful for us all. Here is the article in its entirety:

Gross Prefers Bonds, Dividend-Paying Stocks in ‘New Normal’

By Bryan Keogh

July 1 (Bloomberg) -- Investors should favor bonds and dividend-paying equities as the U.S. heads into a “new normal” of higher savings and lower consumption, said Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co.

Higher savings, lower consumption and annual economic growth of about 2 percent, as opposed to 3.5 percent, may last a generation or more, meaning investors should “stress secure income,” Gross, who helps oversee about $756 billion as co- chief investment officer at Newport Beach, California-based Pimco, said today in his July note to clients.

“‘Non Appétit,’ not Bon Appétit, will become the apt description for the American consumer, and significant parts of the global economy, including the U.S,” he wrote. “It promises to persist for a generation at a minimum.”

Investment-grade corporate bonds returned 9.2 percent this year through June, beating Treasuries by a record 13.7 percentage points, according to Merrill Lynch & Co. indexes. The U.S. government and the Federal Reserve have pledged more than $12.8 trillion to thaw frozen credit markets in hopes of pulling the economy out of the worst recession since the 1930s.

Consumer spending rose 0.3 percent in May, the first gain in three months, while higher incomes drove the savings rate to a 15-year high.

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