Pimco’s Gross: Sandy and Election Mean Little for Stunted Economic Growth

Friday, 02 Nov 2012 11:17 AM

By Michelle Smith

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Superstorm Sandy and the upcoming presidential election are two topics dominating headlines as Americans try to determine what affect these events will have on the country’s economy, but neither one will make much of a difference, according to Bill Gross, Pimco's co-chief investment officer.

The historic superstorm is essentially a two-headed beast. One unleashed massive devastation that will result in significant losses, from property damages to lost wages and production. Sandy's other head promotes economic activity including the money spent preparing for the storm and that to repair and replace what it damaged.

The storm is “unleashing pent-up demand,” as homeowners will likely make further renovations when they are repairing the damage, Diane Swonk, chief economist at Mesirow Financial, told USA Today.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

“It's the most perverse stimulus to the economy,” she said.

Gross told CNBC that PIMCO estimates the storm's economic losses will range from $20 billion to $30 billion and subtract 0.5 percent from economic growth in the fourth quarter.

However, he added that much of that loss would be made up in subsequent quarters, as the affected areas rebuild.

In the end, Gross expects Sandy to be a wash for both the stock and bond market.

Then there is the presidential election, now just days away. Americans are being bombarded with the idea that their selection in the voting booth will have a major impact on their lives and their future. For some issues, this may be true, but what about with regard to economic growth and investments?

Since 1965, the difference in stock returns under Democratic and Republican presidents was less than 7 percentage points, according to The Wall Street Journal.

To be sure, since 1926, the Standard & Poor's 500 has fared about two times better under Democratic presidents than Republicans, according to Credit Suisse research.

But Gross doesn't believe it matters. A low-growth environment is a low-growth environment under any administration.

“No matter who wins, we’ll be at this point four years from now,” Gross said.

“If we're looking at a ‘new normal’ economy of slow growth, then going forward asset markets have to reflect that growth and they have to reflect the zero percent interest rate,” he told CNBC.

“This is not a double-digit type of returning market for any investor,” he added.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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