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Next Year Will Get Even Uglier for U.S. Investors

(Adds the Federal Reserve's outlook on the economy and the jobless rate.)

BOSTON ( TheStreet) -- Individual investors will be up against political gridlock as the economy grows slowly next year, prospects that may damp stock-market gains even if Congress pushes through a trillion-dollar budget cut.

A "relatively toxic political environment" next year will "get uglier," said Liz Ann Sonders, chief investment strategist at Charles Schwab, during the Schwab Impact 2011 investment advisor conference in San Francisco late Tuesday. "Maybe it'll get prettier. But the first hurdle is the Super Committee."

The so-called Super Committee is the bipartisan congressional group whose goal is to find $1.2 trillion in budget cuts by Thanksgiving. The committee was formed in August following the debt-ceiling debate that eventually led to Standard & Poor's cutting the coveted triple-A rating on U.S. debt.

If the Super Committee doesn't come to an agreement and vote before the Thanksgiving holiday, $1.2 trillion in automatic reductions will be triggered.

"We have to start hearing some semblance of a plan by the first week of November so the [Congressional Budget Office] can score it in order for a vote to happen on the 23rd," Sonders said. "I continue to think, not because of some inside scoop I have, there is a decent chance for something bigger than $1.2 trillion."

Sonders argues that the bipartisan committee would have an easier time coming to an agreement if it attempts to go big rather than tinker around the fringes.

"That's where the infighting starts," she said. "Both sides have come to the table ... understanding that you can't just tackle on the spending side and the math doesn't work purely on the tax side. You need growth but you need these other pillars as well. And yes, you have to address entitlements at some point."

Bill Gross, the founder and co-chief investment officer at Pimco, shared the stage Tuesday with Sonders. He wasn't optimistic that the committee would meaningfully address entitlements.

"I think both parties are clueless in terms of how to get out of this," Gross said. "Entitlements are a long-term problem. Jobs are the near-term problem and we can't pay for entitlements until we put the country back to work again."
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