In 2009, PIMCO coined the phrase, the “New Normal” to describe the post-crisis macro malaise they expected us to have. They were spot on and this phrase gained universal appreciation. Now, four years later, it looks like they are ready to retire the new normal and shift toward thinking about a global macro transition and they have a few questions about how this will proceed.
Here’s the framing of questions they have in anticipation of this year’s PIMCO secular outlook:
- How will the gradual economic and financial healing of the West (most visible in the corporate, housing and banking sectors) interact with increasingly embedded structural low growth dynamics and stubborn pockets of indebtedness that many of these economies still face?
- If, when and how will the benefits of unusual central bank activism – which has altered historical asset class correlations and significantly impacted returns – get overwhelmed by what Federal Reserve Chairman Ben Bernanke has labeled the “costs and risks” of this experimental policy approach?
- Can emerging economies, including China, evolve their economic models rapidly enough while simultaneously gaining better accommodation within a global governance system still dominated by the West? And what will this mean for their asset allocation and risk preferences as major global investors in certain asset classes?
- How will the related investment opportunities in emerging markets benefit next from the trio of credit maturation, asset class deepening and investment pull from unusual policy activism in advanced countries?
- How will capital/labor distribution, and the related impact on corporate earnings and consumption, get affected by the interaction of highly polarized politics with heightened income and wealth inequalities?
- At what point will technological breakthroughs evolve from sectoral influences to more general macro ones, including those that are fundamentally altering input prices and acting as major disruptors to traditional institutional operating models?
I think that’s a good list of questions. I would add the following:
- Will the global economy’s transition out of the new normal phase be hindered by deficit fetishism in developed economies and a lack of re-adjustment between the core Euroland countries and the periphery?
- What should we make of the incipient coordinated monetary-fiscal paradigm? How long will this hand-in-glove central bank – central government activity last and what will the effect on asset prices be?
- Is Japan the country to look to regarding secular trends in indebtedness, demographics, inflation and macro policy?