Next Year Will Get Even Uglier for U.S. Investors
Gross argued that both Republicans and Democrats have avoided the critical question of how to create jobs in the U.S. He cites the Obama administration's "ginger policy advancements" and Republicans' continued efforts to balance the budget immediately.
"You don't have to be a Republican or a Democrat," Gross said. "You can create jobs through the private sector with incentives. You can create jobs in the public sector through an infrastructure bank."
Federal Reserve policymakers today dimmed their outlook for U.S. economic growth next year even after saying the economy "strengthened somewhat" in the third quarter. In additon, policymakers forecast that unemployment will average 8.5% to 8.7% in 2012's fourth quarter, which will host the presidential election. The jobless rate is currently 9.1%.
Gross said the U.S. needs to work again "not producing paper but producing things," a reference to the notion that financial engineering has replaced manufacturing."Both parties are dancing around that, perhaps even clueless, in terms of what needs to be done," he added. "They have very little ideas to get out of this. I think both parties have to take an entirely different approach going forward." For investors, the Super Committee is only the first hurdle in the political year ahead. In January, the primary elections begin for GOP presidential hopefuls, leading up to the presidential election in November. Sonders argues that through the next year, the outlook for the economy is the new normal, an idea coined by Gross that investors will face a slow growth amid deleveraging. "I think we're hard-pressed to get much more than about 2% growth," Sonders said. "Historically, that has not been a disaster for the equity markets, particularly if it is accompanied by relatively low inflation." While that's not quite a Goldilocks scenario, such slow growth may keep inflation in check. "We've had decent low double-digit returns for equities in the past in that kind of environment," Sonders said. -- Written by Robert Holmes in Boston.
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