Big bears turn bull

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As world share market indices push into record territory, the big, unspoken fear is that the world climate of sustained, very low interest rates – necessary to give time for the long, slow economic recovery from massive deleveraging – could contain the seeds of another investment bubble.

This is why some of the best investment thinkers continue to worry about the future of interest rates to try to anchor their long-term investment policies. On this subject, two influential US investment gurus have been reassuring investors - and cautioning them against jumping off the rising market too soon.

The Gross outlook

PIMCO managing director Bill Gross, who coined the “new normal” tag for markets several years ago, now has a new tag – “new neutral”. Writing in his group’s May Investment Outlook, he says PIMCO thinks the new neutral policy rate of the Federal Reserve is nearer to 2%, rather than the 4% being assumed by the markets. If so, he says “then bonds, instead of being artificially priced would be attractively priced.”

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