Why The "New Normal" Should Matter To You

Among the multitude of voices, commentaries and other so-called expert perspectives on economics, markets and money, there is one that I admire and respect for his vision and practical perspective. His name is Bill Gross and he is a renowned investment manager for the Pacific Investment Management Company (PIMCO).

In his November, 2009 Investment Outlook, Bill introduced his concept of a “New Normal” paradigm for the global economy and financial markets. He defines his “New Normal” paradigm as:

“A period of time in which economies grow very slowly as opposed to growing like weeds; where government plays a significant role in terms of deficits, regulation and control of the economy; where the consumer stops shopping until he drops and starts saving to the grave”.

More specifically, this new paradigm suggests that:

• The American-style capitalism that emphasized the making of paper instead of things is over and will cede global economic leadership to countries that actually make things. The United States must return to an economy that is geared towards making real products if it is to be a significant player on the global economic scene in the years to come.

• The invisible hand of free enterprise driven by the private sector will be increasingly replaced by the more visible fist of the government’s direction of economic activity in the United States.

• Global economic leadership in the 21st century likely belongs to Asia (particularly China) and Asia-connected economies (like Brazil and India).

• United States housing ownership levels will sink over time, and housing will not be a significant economic driver in the years to come.

• Unemployment in the United States is likely to remain high for many years to come. The “New Normal” level of unemployment will be much higher than it has been over the last few decades. Some jobs will never come back.

While there are no guarantees that Bill Gross’ vision will play out as he suggests, he makes a very strong case that is based on solid analysis and it should not be ignored. We should all acknowledge it; be on the lookout for indications of its validity; and be prepared to tactically adjust our financial and professional lives in response to it.

We should all get ready for the “New Normal”.