Bill Gross of PIMCO on Investment Outlook for 2012:
The New Normal, previously believed to be bell-shaped and thin-tailed in its depiction of growth probability and financial market outcomes, appears to be morphing into a world of fat-tailed, almost bimodal outcomes.
A new duality – credit and zero-bound interest rate risk – characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion.
Until the outcome becomes clear, investors should consider ways to hedge their bets, including: maximizing durations, U.S. Treasury bonds that may potentially offer capital gains, long-term Treasury Inflation Protected Securities (TIPS), high quality corporates and senior bank debt, and select U.S. municipal bonds.
Bell-shaped and thin-tailed/fat-tailed & bimodal: Normal distribution and standard deviation graph attempting to describe the possible outcomes of economic growth.
Bell-shaped: Normal distribution of outcomes. Expects a normal return of economic growth
Thin-tailed: Relatively modest risk of ABnormal outcomes
Fat-tailed: Lots of risk for ABnormal outcomes
What Bill Gross is saying is that the range of outcomes for the economy is far from normal and has much greater risk of abnormal outcomes.
So, the fact that we are STILL discussing economic recovery and de-leveraging & central banks economic management risk in 2012 after the 2008 financial meltdown makes this an economic/investment outlook made by looking in the rearview mirror.
Boudin Chaud. Cous Cous Froide. Allons Tigres--Poussez Poussez Poussez
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury
445 North Blvd, 7th Floor
Baton Rouge, LA 70802
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