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In a world of de-leveraging and less globalization, Gross said things will not bounce back.  “Growth will be stunted and subdued, and this will have a big impact on corporate profits” that could last ten years, he said.

Investors should be guided by a set of rules – Gross’ Seven Commandments:

2. “Get used to your 301(k),” Gross said.  Retirement accounts will not rebound to previous levels, as corporate growth rates and profit margins are at risk.
3. Companies like Coca Cola and Proctor and Gamble, with large consumer franchises and the power to pass on price increases, are best positioned for this economy.  Gross expects these companies to earn 6-8%, which he said was comparable to high-quality corporate bonds.
4. “Shake hands with the government,” he said.  Gross advised investors to look at what the government is buying and buy it first, and then look for the exit.  He doesn’t advise a clasping of the hands with the government, but rather a “fist bump” acknowledgment – the way comedian and germophobe Howie Mandel acknowledges his friends.
5. One day – sooner rather than later – the dollar will lose its reserve status.  Investors should diversify internationally more aggressively than in the past.
6. Russia was a good bet when oil prices were high, and but investors should look at Brazil, India, and China – the BRIC economies minus the “R.” 
7. Prepare for up to $3 trillion of gross government debt issuance in the next year.  Debt is now 60% of GDP and will go to 100% in four years, and this will jeopardize the credit rating of US Treasury debt.

The last point that concerns Gross the most.  His fears extend beyond current budget deficits, and are more focused on the liabilities imposed by Social Security, Medicare, and Medicaid, to which he collectively attaches a $40 trillion price tag.  Gross offers bond investors the most conservative advice he can – “confine maturities to the front end of yield curves where continuing low yields and downside price protection is more probable.”

The investment business will change too, as pressure will mount to reduce fees.  “The returns won’t be there” to justify them, Gross said. 

Don’t plan on the New Normal era ending soon.  “There won’t be an end, just a different kind of world that we all have to get used to,” Gross said.

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