In May 2009, PIMCO colleagues from around the world converged on Newport Beach for our annual Secular Forum. This highly interactive and anticipated event informs and influences our investment positioning over time. Specifically, it defines the secular (3–5 year) guardrails for the higher frequency investment analyses that emerge from our quarterly Cyclical Forums, and from the Investment Committee’s sessions held four times a week.

This was not an easy Forum. Travelers had to navigate concerns related to the risk of a swine flu pandemic. We debated at length the wisdom of gathering so many people in a room for 2½ days. And all this took place well before we got down to the difficulties of deciphering an unusually blurry economic, financial, social and political environment.

Yet, as Bill Gross said to many of you at our March client conference, “PIMCO loves a challenge.” So we, individually and collectively, stepped up to the plate and dealt systematically with the many moving pieces that will define the secular outlook and potential range of variations.

Needless to say, many of us entered the discussions with priors and biases. After all, recent months have been dominated by unprecedented volatility in factors that have conventionally anchored market relationships. Indeed, some of you have already heard us argue that the world is traveling on a bumpy road to a new destination – or what PIMCO has labeled the “new normal.” And, reminiscent of what happened a few years ago with Bill Gross’s concept of a “stable disequilibrium” and Paul McCulley’s “shadow banking system,” the notion of a new normal is increasingly resonating in policy circles and among market practitioners.

This reflects a growing realization that some of the recent abrupt changes to markets, households, institutions, and government policies are unlikely to be reversed in the next few years. Global growth will be subdued for a while and unemployment high; a heavy hand of government will be evident in several sectors; the core of the global system will be less cohesive and, with the magnet of the Anglo-Saxon model in retreat, finance will no longer be accorded a preeminent role in post-industrial economies. Moreover, the balance of risk will tilt over time toward higher sovereign risk, growing inflationary expectations and stagflation. But, hold on, I am getting ahead of myself here. I still have a few more preambles!

Yes, we entered the Forum with priors and biases. So it was even more important to have them tested by the views of knowledgeable outsiders. Accordingly, and consistent with the tradition established many years ago, we invited outside speakers known for their independent thinking and provocative analysis. They did not disappoint.

Our discussions were enhanced by insights offered by Willem Buiter, Peter Costello, Bill White, and Fareed Zakaria (see box below). Once again, we had the privilege of Alan Greenspan (former Federal Reserve Chairman) and Mike Spence (Nobel laureate in Economics) sitting at the table offering their thoughts and reactions. In the same spirit of intellectual openness and challenge, we gave the floor to our talented class of new MBAs so that they could also throw into the mix ideas that are still heavily influenced by their non-PIMCO past. Boy did they impress!

To download "A New Normal" in PDF format, click here