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During the current global crisis, many investors have been following the wisdom of Mohamed El-Erian, who is the co-CEO of Pimco, the largest bond manager. In fact, he recently put out a report, called the "Secular Outlook," which has a three-to-five year forecast.
Unfortunately, if El-Erian is correct, we'll need to get accustomed to a "new normal" of muted economic activity.
While the massive governmental intervention has helped to stabilize the financial system, there are nonetheless real costs, which will make it tougher for businesses to innovate and take risks. Plus, the de-leveraging process will continue to be a drag. It will also be tougher to engage in international trade because of new barriers.
The upshot is slower economic growth and higher unemployment.
How slow? Well, according to El-Erian, we'll probably see GDP run at 2% or so and unemployment remain above 8%.
But there are certainly opportunities, and El-Erian has some investment ideas. For example, he advises that investors focus on investment grade bonds. Also, assuming the dollar falls, he sees opportunities in global markets, especially China.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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