{"id":29610,"date":"2012-05-13T22:53:53","date_gmt":"2012-05-14T02:53:53","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/investors-need-to-know-the-financial-world-has-changed\/"},"modified":"2012-05-13T22:53:53","modified_gmt":"2012-05-14T02:53:53","slug":"investors-need-to-know-the-financial-world-has-changed","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/13\/investors-need-to-know-the-financial-world-has-changed\/","title":{"rendered":"Investors Need to Know The Financial World Has Changed"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

Investors<\/strong> need to accept the fact that \u2018the game as we have all known it appears to be over\u2019, says US investor Bill Gross. The co-founder of the world\u2019s biggest bond fund, PIMCO, reckons that investors need to change their strategies in the wake of the financial crisis.<\/p>\n

<\/span><\/p>\n

To understand how different things are now we have to look at the history of leveraging, before the financial crisis, says Gross. Since the early stages of the 20th century \u2018the trend towards financial leverage has been ever upward\u2019. Politicians set the rules, by relaxing regulation and freeing paper currency<\/a> from real world constraints like gold<\/a>.<\/p>\n

Meanwhile \u2018the private sector was more than willing to play the game, inventing new forms of credit, loosely known as derivatives\u2019. The ever-expanding credit had a profound effect on investing attitudes, says Gross.\u00a0 \u2018\u201cStocks for the long run\u201d was the almost universally accepted mantra, but\u2026 for most of the last half century [it was] \u201cfinancial assets for the long run\u201d \u2013 and your house was included by the way in that category of financial assets even though it was just a pile of sticks and stones.\u2019<\/p>\n

Investors became used to the idea that extra leverage would push up the value of financial assets in the future. \u2018P\/e ratios rose, bond prices for 30-year Treasuries doubled, real estate thrived, and anything that could be levered did well because the global economy and its financial markets were being levered and levered consistently.\u2019 In effect, wealth was \u2018brought forward and stolen from future years\u2019, says Gross.<\/p>\n

The New Normal<\/h3>\n

<\/center><\/p>\n

But growth expectations \u2018exceeded the abilities of global economies to consistently replicate them\u2019. The crash came and now some countries and economies are trying to pay off debt instead of adding more. Globally credit<\/a> is still going up but far more slowly than before.<\/p>\n

The result is \u2018negative real interest rates and narrow credit and equity risk premiums; a state of financial repression<\/a>\u2026 that promises to be with us for years to come\u2019. In this \u201cnew normal\u201d \u2018real growth as opposed to financial wizardry becomes predominant\u2019. But achieving that growth is made more difficult \u2018by excessive fiscal deficits and high debt\/GDP levels\u2019, says Gross.<\/p>\n

So what does that mean for investors? Gross reckons that in the \u201cnew normal\u201d commodities<\/a> and \u201creal\u201d assets <\/a>will be the star performers. If you are going to go for financial assets then pick those that pay back quickly. So for bonds \u2018favour higher quality, shorter duration and inflation protected assets\u2019. And if you want shares look for dividend payers<\/a>, rather than the longer-term promise of growth stocks.<\/p>\n

James McKeigue<\/strong><\/p>\n

Contributing Writer, MoneyWeek<\/strong><\/p>\n

Publisher\u2019s Note: <\/em>This article originally appeared in MoneyWeek (UK)<\/a><\/p>\n

From the Archives\u2026<\/em><\/strong><\/p>\n

What Newton Knew About House Prices \u2026That the IMF Should<\/a><\/p>\n

2012-05-11 \u2013 Kris Sayce<\/p>\n

Why a Greek Exit From the Eurozone Could Be Great News For Markets<\/a><\/p>\n

2012-05-10 \u2013 John Stepek<\/p>\n

Why Europe Will Ditch Green Energy<\/a><\/p>\n

2012-05-09 \u2013 Kris Sayce<\/p>\n

Why It\u2019s Time to Buy Gold<\/a><\/p>\n

2012-05-08 \u2013 Dr. Alex Cowie<\/p>\n

Why You Should Be Watching Japan\u2019s Economy<\/a><\/p>\n

2012-04-07 \u2013 Dan Denning<\/p>\n

For editorial enquiries and feedback, email letters@moneymorning.com.au<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nInvestors Need to Know The Financial World Has Changed <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Investors need to accept the fact that \u2018the game as we have all known it appears to be over\u2019, says US investor Bill Gross. The co-founder of the world\u2019s biggest bond fund, PIMCO, reckons that investors need to change their strategies in the wake of the financial crisis. To understand how different things … <\/p>\n

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