We believe the general trend toward more diversified capital structures may be positive for investors in the loan market. Recent changes in loan market investor mix have had and will likely continue to have a positive impact on loan spreads. In addition to price, leverage and other quality measures in new issues also generally remain attractive.

Basel III?s long-term funding and liquidity coverage requirements could boost demand, create technical support for valuations. The EC has proposed an exemption excluding covered bonds from private sector participation in post-insolvency burden sharing. The Covered Bond Act could alter the way regional banks in the U.S. rely on the Federal Home Loan Bank (FHLB) system for funding.

Circumstances have catapulted Christine Lagarde into the role of leader of the IMF: the world?s most influential and fastest-responding multilateral institution. Lagarde will need to hit the ground running if her tenure as IMF managing director is to be an inspiring story of institutional transformation. She should waste no time in establishing a legitimate selection process for the next managing director that is truly based on merit. She must strengthen the analytical robustness of the IMF?s response to debt crises, and prepare the Fund?s balance sheet for the risk of future impairment.

Global inflationary patterns may shift amid higher commodity prices. We expect commodity prices to be generally rising going forward, though with volatility and differentiation among commodities. Emerging markets going through a particularly commodity and energy intensive phase of growth may affect what developed-world consumers pay for commodities. Currencies are another factor. If developed-world policymakers attempt to make their economies more competitive via a cheaper currency, that could lead to higher inflation for those that are net importers.

Energy markets are focusing intensely on the price impact of today?s International Energy Agency decision to release oil supplies. Governments (and central banks) getting pulled deeper into markets as portfolio managers, as opposed to regulators and supervisors. Policymakers are trying to differentiate between good and bad inflation ? namely, enhancing the former and countering the latter.

Investors need to be especially alert to increasing financial repression. Any sovereign policy that interferes with free market activity and the pricing of debt or currency can be thought of as financial repression. Repressionary policy rates percolate through the global financial markets and affect asset prices across the risk spectrum. Many emerging market countries use repressionary tactics to capture a larger share of global growth.

?U.K. CPI (Consumer Price Index) will likely continue to be buffeted by food and energy inflation. To generate the conditions necessary to bring inflation down more aggressively would put even greater pressure on U.K. households. The Bank of England is right to be cautious on raising the Bank rate given the current state of the economy.

Balance sheets and other structural problems will repeatedly impact headlines (and weigh on markets) unless policymakers alter their course. European policymakers and the IMF have spent the last year treating Greece?s predicament as a liquidity problem as opposed to what it is: a solvency and growth crisis. By ignoring the basic issue of Greece?s solvency, some previously pristine balance sheets are now contaminated. In the U.S., political dithering (and bickering) is complicating the country?s ability to deal effectively with structural impediments.

The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets. Fiscal balance alone will not likely produce 20 million jobs over the next decade. Government must take a leading role in job creation. A growing number of skeptics wonder whether college is worth the time or the cost.

Over the next three to five years, we argue that market behavior may be vastly different than what typical cyclical models would predict. Sovereign debt, which is at the core of our global financial system, is undergoing a seismic shift. Governments practicing financial repression may be transferring wealth from creditors (citizens) to debtors (governments) to the detriment of creditors, fixed income investors and savers.

?The Fed?s policies and its fat balance sheet are playing a powerful role in shaping financial and economic conditions around the world. The drain of a single dollar from the financial system will signal a reversal of Fed policy and thus have a major bearing on financial conditions. Depending on the speed of the economic slowdown, the Fed could decide to keep a level of discretion over when and what will be reinvested in its portfolio.

?In today?s polarized environment in Washington, Republicans and Democrats are unwilling to compromise ?too early.? Such political paralysis on key economic issues is increasingly unsettling for the U.S. private sector, and for other countries that rely on a strong U.S. at the core of the global economy.

Much of the evolution of our secular economic outlook for advanced economies will depend upon the degree and success of structural policy changes. To date, few such policies have been implemented. We think the U.K. is implementing what is probably the best combination of fiscal and monetary policies to address deficit reduction with an eye to structural issues. In the U.S., we see great economic benefit from shifting some public spending from consumption to investment ? for example, to the energy sector, where the U.S. has a large deficit vs. the rest of the world.

Despite massive fiscal and monetary stimulus, the U.S. economy has frustratingly failed to gain proper traction. The U.S. economy faces structural impairments in housing, credit, public finances, and the functioning of the labor market. The situation in Europe is another factor undermining market sentiment. Structural problems require structural solutions that are adopted within a clearly communicated overall vision.

Structural problems require structural solutions to improve the labour market, housing, credit and medium-term fiscal sustainability. Some analysts will encourage investors to look through these ?temporary and reversible? factors. We should not. The U.S. lost its edge in educating, training and retooling its labour force. This slippage has been extremely costly.

The eurozone?s peripheral debt crisis is morphing into a tussle between politics and economics and the strains are beginning to show. Greece and Ireland are on programs that are neither restoring stable debt dynamics, nor in keeping current investors engaged or attracting new ones. Portugal is now following the same approach. The better and more realistic approach for the eurozone as a whole might be to acknowledge the Greek plan is not working and move to Plan B ? address the need for a restructuring of Greece?s public debt and perhaps that of other countries too.

If left unchecked, high and accelerating inflation in emerging markets will have growing adverse economic, social and political effects. In addition to undermining overall growth and resource allocation, emerging market inflation imposes a very heavy burden on the poor and erodes political unity. Emerging economies will tap multiple policy brakes as they seek to counter mounting inflationary pressures. And they will continue to grow, but not enough to pull up decisively the sluggish advanced countries.

If the government is going to artificially repress yield, then focus on the parts of a bond that are less repressed! Rather than outright default, many countries attempt rather successfully to keep nominal interest rates lower than would otherwise prevail. Over the long term, this ?financial repression? results in a transfer of wealth from savers to borrowers. Investors shouldn?t give their money away, and at the moment, the duration component of a bond portfolio comes close to doing just that ? because it doesn?t yield enough relative to inflation.

It is a world that heals slowly and unevenly, and remains structurally impaired. Balance sheets, both across and within economies, are still out of equilibrium. We expect advanced economies will face sluggish growth and persistently high unemployment over the secular horizon. Emerging economies will achieve higher growth but face recurrent inflationary concerns. We do not expect policymakers to boldly address structural problems. By targeting negative real interest rates, they will pursue financial repression that undermines the ?real return? contract that savers expect.

Should Strauss-Kahn be forced to step down, this would catch the IMF with a selection process for the top position that is still overly dominated by politics. The allegations facing Strauss-Kahn are serious and will take time to be investigated properly. In the meantime, they have caught Europe still without a sustainable solution to the debt crisis in its periphery.

Low policy rates and the increasing negative real yields that they engender as inflation accelerates represent an immediate threat to investment portfolios. Bond prices dont necessarily have to go down for savers to get skunked during a process of debt liquidation. PIMCO advocates a renewed vigilance, stressing bond market alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies.

With quantitative easing the Federal Reserve has in essence picked the pockets of Treasury bond investors throughout the world. Ultimately, the U.S. must own up to its past sins and let the deleveraging process play itself out. The U.S. must invest in its people, its land, and its infrastructure, as well as promote free trade, to achieve economic growth rates fast enough to justify consumption levels previously supported by debt.

Public expectations of future inflation are an important determinant of actual inflation. We really don?t know if longer-term inflation expectations are well anchored. We just know they tend to adjust slowly to actual inflation. The substantial economic costs of bringing down high inflation are largely due to the need to bring down inflation expectations. Most central banks that recently enacted unconventional monetary policies are seeking to exit from them.

Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising. Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden. Unless entitlements are substantially reformed, the U.S. will likely default on its debt; not in conventional ways, but via inflation, currency devaluation and low to negative real interest rates.

Japan is recovering from the horrible calamities, but doing so in the midst of enormous challenges and high uncertainty.

Europe?s outlook hinges on limiting contagion from the most troubled peripheral countries. The European Central Bank has signaled its intentions to start tightening, which could complicate the outlook for the more distressed countries. We think the Bank of England will begin to tighten rates over the summer. The UK outlook depends on the impact of fiscal tightening.

Japan?s reconstruction challenge will likely be more difficult than after the Kobe earthquake. Negative wealth and income effects this time around will be more severe, and the recovery process will probably take longer and be more complex. Japan's disasters will add to the global economy?s headwinds.

PIMCO continues to foresee a multi-speed global recovery over the next few years. The U.S. is experiencing a cyclical economic rebound, but its strong durability is uncertain. Several countries in Europe face headwinds to growth over our cyclical horizon. Japan?s growth rate will likely fall in the near term, but reconstruction activities should stimulate growth over time. We expect real economic growth in key emerging economies to remain at a solid rate during 2011, but lower than 2010.

Much of the potency of policy responses has been used up in the successful efforts since 2008 to avoid global depression. The longer the persistence of supply disruptions, the greater the risk of core inflation increasing. Questions about the end of quantitative easing in the U.S. pose a challenge for policymakers.

Japan has the ability to recover economically from these horrible natural disasters. Japan?s immediate focus is on the enormous human suffering, and rightly so. Attention also turns towards the extent of the damage to the economy and its reconstruction and rehabilitation plans. The good health of Japan is central to a robust global economy that generates lots of jobs and enhances productivity.

A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and stability. Because quantitative easing has affected all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences. Who will buy Treasuries when the Fed doesn?t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.

For two months, developments in the Middle East and North Africa (MENA) have taken most by surprise. What started as an protest in Tunisia has developed into a regional phenomenon that has toppled regimes and is threatening others. Indeed, every day seems to bring an historical event that is changing the region and impacting the global economy. Governments across the globe have spent weeks playing catch up in the midst of unthinkable developments in MENA. They have organized emergency evacuations of citizens and constantly responded to realities on the ground, including the violence in Libya.

In the short run, regional developments will be stagflationary for the global economy. In the next few days, markets will react to the changed outlook for the region and the global economy. Over time, market apprehension is likely to give way as the impact of greater long-term stability in a key part of the world is felt.

Bernanke's comments will raise eyebrows among policymakers in emerging economies. His remarks highlight persistent differences in analysis that complicate policy discussions. International cooperation will not materialize unless advanced and emerging economies converge on a common analysis of the key issues. My hope is that the G-20 meeting will take an important step in this regard, and do so by recognizing that there is more than one perspective to today?s global challenges. I fear, however, that this may not materialize as yet.

Although real, pension problems will not lead to an immediate debt crisis this year or the next five years. A default by Detroit, for example, would not precipitate bankruptcy filings by large cities across the nation. The municipal market will continue to migrate from being a low-risk asset class to a credit asset class.

Spain?s success is of acute relevance to the rest of the eurozone. Unlike Greece, Spain does not have a direct public finance crisis. Spain is where Ireland was a couple of years ago, but is clearly keen to avoid Ireland?s experience. To avoid a bad outcome in Spain (and the rest of the eurozone), additional, significant and highly visible progress needs to be made within the next few weeks.

Money has become the economic and political wedge for profound changes in American society. Perhaps the most deceptive policy tool to lessen debt loads is the ?negative? or exceedingly low real interest rate that central banks impose on savers and debt holders. Old-fashioned gilts and Treasury bonds may need to be ?exorcised? from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint.

The president left no doubt that tackling unemployment was a priority. Success on this would also facilitate the medium-term budget reform that he is targeting. Mr. Obama must make clear jobs creation can no longer depend simply on stimulus, federal government hiring, and the hope that previous drivers (such as construction) will return.

The sequencing of Europe?s debt crisis is depressingly similar ? the plot stays the same, with a slightly different cast depending on the country in the spotlight. Yet, judging by the run-up to the meeting of European Union finance ministers in Brussels on Monday, European officials seem intent on repeating it over and over again.

American politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion-dollar annual deficit. Meanwhile, policy stimulus is focused on maintaining current consumption as opposed to making the United States more competitive in the global marketplace. Dollar depreciation will sap the purchasing power of U.S. consumers, as well as the global valuation of dollar denominated assets.

The problem is that Germany's current approach ? centered on dealing with liquidity problems now and solvency centered later ? is not working. A liquidity approach that delays the day of reckoning may be good regional politics, but it's bad economics. It does not restore sustainable growth to the periphery, and it exposes the core to contamination. Rather than simply doubling up on a faltering liquidity approach, the time has come for Germany to lead a more holistic solution focused on addressing the periphery?s debt overhang and competitiveness problems.

The global economy is suffering from a lack of aggregate demand. In the U.S. and Euroland, many policies only temporarily bolster consumption while failing to address the fundamental problem of developed economies: Job growth is moving inexorably to developing economies because they are more competitive. Unless developed economies learn to compete the old-fashioned way ? by making more goods and making them better ? the smart money will continue to move offshore to Asia, Brazil and their developing economy counterparts, both in asset and in currency space.

Ireland's new liquidity package does little to deal with its debt overhang, or to reduce the embedded cost of its debt. Instead it aims to introduce stability into market conditions. It took time for Europe to recognize the severity of the peripheral debt crisis. Now it is also recognizing that liquidity support (while necessary) may not be enough.

Advanced economies are not wired to operate at elevated levels of sovereign risk. The longer these spreads persist, the greater the decline in investment activity and employment. If things are left as they are the risk of further social unrest will rise, while tax revenues will collapse at a time when budgets are already under enormous strain. The policy responses of eurozone governments were supposed to buy a few years of calm, but ended up by delivering only a few months. A more effective and credible approach is now needed.

The Fed makes policy consistent with its legislative mandate handed down by the democratically elected government of the United States. Price stability (mandate-consistent inflation) that promotes bubbles in asset prices and debt creation is a prescription for a debt-deflation bust and a subsequent liquidity trap. Acting irresponsibly relative to conventional wisdom is precisely the right approach for reversing an economy facing, or worst yet, mired in a liquidity trap.

With the two chambers of Congress split between Democrats and Republicans, the conventional wisdom likely to be repeated over the next few weeks is that political gridlock is good for the economy. While often true, that is not the case today. Democrats and Republicans must meet in the middle to implement policies to deal with debt overhangs and structural rigidities.

The Fed's announcement of a renewed commitment to quantitative easing has been well-telegraphed, and the market's reaction is likely to be subdued. We are in a 'liquidity trap,' where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there. The Fed's announcement will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.

Judging from the minutes of the September 21 Federal Open Market Committee meeting, it is virtually a foregone conclusion now that the Federal Reserve will announce on November 3 that it is re-engaging in 'unconventional policies.' As a body, the FOMC recognizes that the benefits of quantitative easing come with potential costs and risks, including unintended consequences. Despite this tricky and uncertain balance, it feels compelled to act.

In the early part of this crisis, swift coordinated global policy action saw a painful economic collapse replaced by employment gains and greater financial stability. However, the marked failure to continue coordinated action reflects two critical weaknesses that now must be taken seriously: an insufficient appreciation of the mix of post-crisis forces; and a growing void at the center of the international system. For the IMF this means acting on long-standing governance and representation problems ? and doing so by going well beyond what is being currently contemplated.

The influence of emerging economies is on the rise, while developed countries are retrenching. Monetary policy in the developed countries will remain extraordinarily accommodative for an extended period, with policy rates pinned close to zero and use of quantitative easing. PIMCO will therefore position its duration and curve strategies accordingly: overweight investments in the developed world, concentrated in the 'belly' of yield curves. In contrast, an increasing share of its positioning in the 'spread sectors' will be allocated to the emerging markets, including their currencies.