Pimco’s Seidner Says It’s Time to Give ‘The New Normal’ a Rest
(Bloomberg) -- It may be time to scrap the oft-used phrase ‘the new normal.’ So says Marc Seidner of Pacific Investment Management Co.
“Pimco often gets credit for coining the phrase ‘the new normal’ coming out of the financial crisis,” Seidner, the firm’s chief investment officer for non-traditional strategies, said in a webcast Friday organized by Boston College’s Carroll School of Management. “I’m actually getting pretty sick of the phrase.”
Instead, Seidner said, he may try to convince his Pimco colleagues that “maybe we’re heading into what is an old, old normal.”
The way Seidner sees it, investors were “lulled into complacency” over the last decade. The 2010s saw Wall Street’s longest-ever bull market, historically low interest rates and an economy that grew every year.
“Perhaps we’re going back to some sense of old, old normal where we all have to manage through periods of radical uncertainty, where the distribution of possible outcomes isn’t this beautiful bell shaped curve where you can assign succinct probabilities to tail events,” he said.
A Pimco spokesman declined to comment on his remarks.
The phrase ‘the new normal’ is ubiquitous. A news search on Google brings up about 43.6 million results for the term. And it’s unclear who coined it. Former Pimco Chief Executive Officer Mohamed A. El-Erian, a Bloomberg Opinion columnist and Allianz SE chief economic adviser, is credited with using it widely and being a leading proponent of the thesis.
There are also many economic experts who contend the term needs to be refreshed for a new economy of diminished demand and paltry productivity.
In other comments on Friday in Boston, Seidner said the U.S. economy is unlikely to return to levels seen before the coronavirus pandemic until 2022.
The economy “took an elevator ride down and will climb the stairs back up,” he said.
The spread of the coronavirus ended the bull market, pummeled the economy and put millions of Americans out of work. It also sparked speculation that the U.S. would recover quickly. But Federal Reserve Chair Jerome Powell suggested this week that it will take years for the economy to rebound.
“It’s certainly not going to be V-shaped,” Seidner said of the recovery. It could be “W-shaped” if there are setbacks such as an increase in virus infection rates. he said.
The crisis has also changed the bond market to the benefit of investors, he said.
“We’re getting good attractive yields in some of these markets and we’re getting security,” Seidner said. “We’re winning as bond investors because we’re getting attractive spreads and decent collateral.”
- In an economy of excess demand and constrained supply, Seidner said he wouldn’t dismiss the possibility of increasing inflation over a horizon of three to five years.
- The main challenge investors face is excessive short-term focus.
Seidner is among the team of managers for Pimco’s Flexible Credit Income Fund. It has about $1.3 billion in assets, according to data compiled by Bloomberg.
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