In the long term, betting against PIMCO's Bill Gross when it comes to bonds has proven to be dangerous. In the short term, however, the opposite has been true. Now that PIMCO’s fund has decided to go shorter on bonds — betting that interest rates will remain stable and that economic growth will be low — advisors and their clients need to decide which side they’re on. Big bond managers like Goldman Sachs and BlackRock are comfortable betting against PIMCO, while Legg Mason’s Western Asset Management put out a note that specifically said that they don’t like 5-year bonds, the essence of PIMCO’s strategy.
So what’s behind Gross’ thinking? He claims that there is a new normal — or, as he called in in a May 14 Bloomberg interview, a “new neutral” — and predicts that economic growth and interest rates will not return to levels experienced before the recent financial crisis. So, as Dylan sang: “The Titanic sails at dawn. And everybody’s shouting, “Which side are you on?’”
