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Paul B. Farrell
Dec. 22, 2009, 12:01 a.m. EST · Recommend (4) · Post:
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By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- New normal? Yes, "New Normal." No more double-digit returns, says Pimco's Bill Gross. Cut your "expectations in half." What's left? Not much, maybe 5%-6% returns. Ouch. How long? Maybe you'll never be able to retire?
Warning, you're being misled (again). Big time. We wrote about the same "New Normal" baloney back in 2002. Back then it was Warren Buffett and Jack Bogle: Two big-shot investors, bigger than Gross and Pimco. And yet, if you had relied on Buffett-Bogle's "New Normal" hype back then you'd have missed the profitable early upswings of the 2003-07 bull market.
The shares of Citigroup, JPMorgan, Wells Fargo and Bank of America should rise in coming years by as much as 60%, as the economy-and their results-improve. Barron's Clare McKeen reports.
Warning: Gross is just as bad. Get it? His "New Normal" is not only "old news," it is misleading, and it's "bad news."
Still, journalists all over America are taking the bait, buying Pimco's story. Gross must have great PR handlers. He's all over the press pushing his "New Normal." Don't buy it. Just because he's the big cheese, managing almost a trillion dollars, don't go ga-ga over him.
Yes, we love icons like Buffett, Bogle, Gross, Tiger or Buddha. But as the great Buddha once put it: "Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense."
So before you start making plans for a new 2010 investment strategy based on Gross's mythical "New Normal," ask yourself four questions: Can you really build a solid nest egg and retire on just 5%-6%? What if Gross's too pessimistic and you miss the coming bull market? Conversely, what if he's too optimistic: The too-greedy-to-fail banks trigger the "Great Depression 2" by 2012? Finally, can you really, really trust Gross (or any other money manager) guessing about the 2010 market: Remember, these guys got paid millions the past couple years while losing billions of your money.
Yes, old news: America's investors heard an earlier version of "New Normal" seven years ago. We fell for it in June 2002, during a scary bear-recession, although the Dow didn't hit bottom at 7,286 for four months more. Then a five-year bull. In June 2002 I wrote: "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, 7% to 8% is the best you can hope for. The go-go years are gone, unlikely to return in our lifetime." Scary stuff.
Then I warned: "America's getting back to normal. But what's 'normal?' The new normal was set by Buffett and Bogle both warning investors to expect single-digit returns for the next decade, in the low 7% to 8% range."
Yes, we did call the Buffett-Bogle prediction a "New Normal" in 2002. Yet here we are, seven years later. And a naive press is again falling for the same PR gaming. And whether you're being gamed by Buffett or Bogle or Gross, remember, their agenda probably won't serve your best interests. So be skeptical and trust your instincts, no matter what.
Yes, Gross is the chief guru of the $950 billion Pimco bond fund managers. His PR agents got him everywhere, except Letterman and SNL. But his message is misleading us. And brainwashing professional advisers, the guys helping millions of investors on portfolio strategies in 2010. Here's how Jessica Marquez put it in InvestmentNews:
"Gross: Curb expectations ... the 'New Normal' is 5%-6% returns ... investors will never again see the returns and profits of a few years ago. Speaking during InvestmentNews' ETF Insights Online Conference" Gross "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.'"
Unfortunately Gross's opinion is biased and questionable: Remember, the I-News professional advisers make big commissions selling Pimco securities to Main Street. Marquez summarized Gross's message to advisers: "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% ... 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'." Yes, "siphon" off Main Street's money.
The market was hot in August when Lynn Thomasson and Adria Cimino wrote "Taking Wall Street Advice in Rally Means Owing $6,000" in Bloomberg News: "Anyone who did what Wall Street analysts advised last March has only losses after the biggest stock market rally in seven decades. Citigroup, Bank of America and more than a dozen other firms told clients to purchase European energy producers and U.S. drugmakers while selling banks and retailers, according to combined rankings compiled by Bloomberg. An investor who used $10,000 to buy companies in the highest-rated industries and bet on declines in the lowest since the advance began on March 9 lost everything and would owe as much as $6,000 to cover bearish trades."
- Castor-PolluxM35 | 12:54 a.m. Today12:54 a.m. Dec. 22, 2009
Chris Liddell, the chief financial officer at Microsoft Corp., must have high hopes in the role he will play in trying to save an American industrial icon, writes Therese Poletti.
2:36 p.m. Dec. 21, 2009 | Comments: 12
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