PIMCO: Consider the new neutral

PIMCO: Consider the new neutral. Bill Gross believes there's a new neutral interest rate environment where normal rates are nearer to zero than the Feds presumed 1.75% or the Taylor rule, which assumes 2%. If The New Neutral is closer to 0%, then all asset markets, which are priced off of it, are less bubbly than they appear at the moment. P/Es of 16-17x seem reasonable. If The New Neutral is closer to 0% than 2% - if Taylor is replaced by PIMCO's New Neutral - then risk assets, even without QE checks, can stand on their own two legs. We expect bonds to return 3-4% over the next 5 years and stocks perhaps 4-5%. If central banks proceed cautiously, there's no need for another Lehman Brothers, but as well, there will be no interest rate propellant for double-digit asset returns. Those days are gone. (VIEW LINK)

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